Porsche this month revealed it had made EU3.6bn from share options in the year to July, compared with about EU1bn from sales of its cars. The news provoked comments from some analysts that the German luxury marque was acting more like a hedge fund than a carmaker. Yet many managers regard derivatives as essential tools to manage the risks of volatility in exchange rates, interest rates and commodity prices. When is it acceptable for manufacturers to place big bets on the market? Should investors be pleased or dismayed when an industrial enterprise makes money from financial speculation? THE ADVICE: THE ACADEMICJames Dow There are two general rules here. First, companies shouldn't use derivatives to speculate unless they specialise in this kind of trading. Shareholders of non-financial companies are, rightly, unsympathetic to this kind of activity. Second, derivatives are useful for hedging - taking positions that reduce overall risk because they are negatively correlated with risks elsewhere in the business - but there is a fine line between hedging and speculation. Unless risk management policy is fixed in advance, discretion on when and how much to hedge can turn hedging into speculation. So the market will be hostile to large hedging trades that are announced after the fact. Porsche's VW options can be justified by the cute argument that it protected itself against the rise in VW shares following the announcement of its possible takeover bid. But it is not clear the market favours the takeover anyway and Porsche has reportedly hinted that the price may now be too high. Since Porsche has great appeal for shareholders as a carmaker, why has it put itself in a position where its spokesman likens the company to a hedge fund that also makes cars? The writer is a professor of finance at London Business School THE CONSULTANTAlan Middleton Porsche should be praised for pursuing its core business, as it appears to be doing. It is following a sound business rationale that has secured a big financial upside. Porsche essentially means the "Porsche-Piech" family. Historically, the family has been entwined with Volkswagen: Ferdinand Porsche was Volkswagen's founder and designed the first Beetle. Until recently, the family protected its interests at the VW board with a minority shareholding and with Ferdinand Piech, the founder's grandson, as the head of VW's supervisory board. However, since the European Court of Justice ruled last month that Germany's "VW law" had illegally shielded Volkswagen from takeover, that approach was put at risk. So Porsche needed to act to secure two interests. First, sharing product platforms and technology with VW-Audi (Porsche cannot easily afford to develop these areas alone). Second, safeguarding the wholesale business of Porsche Austria, which generates around half the family's income. If one assumes that Porsche was acting to secure its core business - and that its decision was based on publicly available information - then the profit was simply a fortuitous windfall. The writer is CEO of PA Consulting Group THE ACCOUNTANTNigel Ruddock Porsche is not the only company to use sophisticated financial arrangements, but such arrangements require very careful consideration from both individual and institutional investors. The complexity and volatility of the global car industry offers ample justification for spreading risk and increasing shareholder value. However, with options trading on its stake in VW netting more than three times the profits derived from its core business, in many ways Porsche has acted more hedge fund than carmaker. The level of sophistication required to make investment choices in such companies is therefore much greater than it is when a business is focused solely on its core competencies. Primarily, shareholders must examine the risk profile of a company's hedging choices as closely as its business fundamentals and the track record of the management team controlling those options. If this trend continues it may become an increasing barrier for individual investors in particular, who often do not have access to data of a quality needed to make well-founded investment decisions. The writer is head of automotive services at Grant Thornton UK THE PRDave Senay Why shouldn't Porsche use every advantage to maintain its financial strength? Investment strategy can help turbo-charge results and fuel R&D, design, production quality and marketing. A failed strategy can hobble the very same things. But does the use of derivatives help or hurt the brand itself? Done well, it helps. Porsche customers want a smart, successful and well-funded company that can create the next generation of terrific cars. Affluent, discerning customers are often very committed to the brand. Many are financial professionals or executives themselves, so they appreciate smart financial management. But they also have plenty of brand choices, so it is essential that Porsche stays true to its enduring brand attributes in every way. The writer is president and chief executive of Fleishman-Hillard