译文内容 译文出处
On the corporate financial risk early warning and control（对企业财务风险的预警和控制）
2010 International Conference on Future Information Technology
and Management Engineering
On the corporate financial risk early warning and control
Liu Jingzhong
Economic and trade department Shang Qiu Polyltechnic Shangqiu, Henan Province, China
sqzyljz@sina.com;
Abstract - Financial risk that a firm will be unable to meet its financial obligations. This risk is primarily a function of the relative amount of debt that the firm uses to finance its assets. A higher proportion of debt increases the likelihood that at some point the firm will be unable to make the required interest and principal payments. Early warning and controlling financial risks effectively can provide a safe and steady operating environment. This paper believe that through analyzing the financial situation, preparing the cash-flow budget, establishing the financial risk index system and computational model to warn early the financial risk. On the other hand, through establishing effective capital structure, selecting correct fund-raising methods and keep the assets highly liquid to control the financial risk effectively.
Key words: Index Terms -financial risk; early warning index; control effectively
1.INTRODUCTION
What is financial risk?
The financial risk is finance achievement and the risk of financial standing.The financial risk separates the narrow sense and the broad sense.The narrow sense financial risk is fallen into debt the causable by the business enterprise, concretely say to mean business enterprise because of lend funds but increment of lose the possibility of the ability of repaying debt and the variability of the business enterprise profits (shareholder income);The broad sense financial risk means the finance system of business enterprise in objective existence of because of various factor function that is hard or can not anticipate and control, make business enterprise realization of financial income and expectation financial income occurrence deviate from, as a result suffer a losing opportunity or possibility.
In this paper,financial risk refers to that because of the unreasonable structure and inappropriate financing, companies may lose solvency, which will lead to the declining in expected return and even bankruptcy of investors.
How does financial risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities.It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. In today's society, debt management is a necessary business strategy for corporate. Through debt management, corporate can make up the shortage of equity fund, and earn profit by using loan fund. The fund needed in production and management generally come from the issued shares (or other equity funds) and debt. In which, the interest burden of debt (including bank loans, issued corporate bonds, and trade credit) is definite. If debt takes up a high proportion in the total fund of the company or the company's profit rate is lower than the interest rate, then the distributable profit of shareholders is reduced, the dividend is decreased, and the risk of stock investment is increased. For example, when a company's profit rate on fund is 10% and the corresponding interest rate of company's loan or the interest rate of issued bond' face is 8%,the interest income of shareholders will be higher than 10%; if a company's profit rate on fund is lower than 8%, the company would be required to pay loans or bonds interest by
8%,the income of common shareholders will be lower than profit rate on fund. In fact, the financial leverage resulting from company's fund raising is like a double-edged sword, and when the interest rate generated by fund raising is higher than interest rate, it will bring growth effect to shareholders' income; otherwise, it is the financial risk of income reduction. Corporate usually encounter a wide variety of financial risks in production and management process. Because of the existence of financial risks, corporate are very difficult to achieve the initial financial benefits, and some of financial risks may even threaten the normal operation and production of corporate. At present, in some corporate, financial risks are not received the attention from the management, then how could corporate predict potential finance risks and have an effective control on them after discovering financial risks?
2. EARL Y WARNING INDICATOR SYSTEM OF FINANCIAL RISK
The financial risk identifies is manage to the financial risk contents before the disadvantageous risk just appeared or appeared, identify, with accurate held various financial risk of signal and it creation reason. The financial risk early warning wants before the financial risk physically takes place and catches and keeps watch on various small evidence to change, with benefit prevention and for adopt an appropriate counterplan to fight for time.The group wants to build up a perfect information management system, once discovering financial risk signal, the ability Be accurate to spread into a main personnel in time, in order to prevent circumstances of gradually extension.
To effectively prevent financial risks, corporate should take some measures and establish early warning indicator system for financial risk analysis. 2.1 Analyze the change income levels to timely detect risk signals
Corporate earnings include 3 levels: operating income, regular income and periodic income. Operating income means the remaining net income deducting operating costs, management cost, sale cost, tax and other additional cost from the total income. Regular income is the income based on the income deducting finance charges. While periodic income is the total of regular income and net non-operating income and expenditure. If a
corporate has started to take a loss since the period of operating income, this corporate is nearly bankrupt. If the periodic income is in the black, maybe this income is due to non-core operations or accident, such as the sale of securities and real estate. If the operating income is in the black, while the regular income is in the red, then the crisis signal has appeared,which is because the corporate capital structure is irrational, borrowing scale is large, and the interest burden is heavy. At this time, some early warning measures should be taken to avoid the financial crises [1]81-82.
2.2 Develop the cash flow budget and analyze financial conditions
The development of corporate cash flow budget is one of the most important parts in financial management. Accurate cash flow budget can help financial managers analyze financial conditions and provide risk early warning signal. As the object of corporate finance is cash or cash flow, so in the short term, whether the corporate can survive is not entirely dependent on whether it is in the black, but on whether there is sufficient cash for various expenses. The premise of the precaution is that corporation should have the profit. For common stable business, its receivables, payables and inventory can hold steady, so the net amount of cash flow generated by operating activities should be greater than net profit (otherwise, the dangerous signal occurs) [2]125-126. To accurately develop cash flow budget, corporate should summarize various specific objectives, Indicate future expected income, cash flow, financial condition and invest plan in a quantized way and establish rolling cash flow budget considering ten days, month, quarter, year as the period.
2.3 Establish risk analysis indicator system and timely monitor financial risk
The following indicators are those financial indictors commonly used in the analysis of financial risk by financial managers 1, profitability
In the long run, if a corporate wants to stay away from the financial crisis, good profitability is a must, then its external financing capacity and liquidation of debts capacity will be stronger. Indicators include:
Net present value rate of total assets = (cash flow generated in operating activities+
dividends or cash obtained from interest payments+ cash interest payments+ cash to pay income tax) / average total assets
Net present value rate of sale = cash flow generated by operating activities / net amount of sale income
Profitability of stockholder interest = net profit/ average stockholder interest 2, Solvency
Basically, the risk of corporate is caused by debts and a corporate operated by its own capital will have only operating risk not financial risk. Therefore, weighing the financial risk of trading on the equity to determine the debt ratio should compare the profitability of trading on the equity and the cost rate of debt capital, only if the former is greater than the latter, the principal and interest can be paid back in time to achieve the financial leverage profit; At the same time, debt-paying ability also should be taken into account, that is, the amount of cash or the allocation of strength debt of its financial the liquidity; various whether items is capital among reasonable. Assessment indicators are as follows: indicators reflecting short-term solvency such as current ratio, quick ratio, etc; indicators reflecting long-term solvency such as asset-liability ratio, equity multiplier, long-term liabilities and working capital ratio, asset retained earnings ratio and debt equity ratio, etc.
3. Economic efficiency
Economic efficiency will directly embody the degree of corporate management. Indicators reflecting the asset management include turnover rate of accounting receivable and balance rate between production and demand, among which: balance rate between production and demand=products sales/industrial output value. 4.Corporate developmental potential
Indicators measuring corporate developmental potential include sales growth and capital maintenance and increment ratio. This paper applies improved efficiency coefficient method to conduct comprehensive evaluation and standardizes several values for each evaluation indicator---one is satisfied value, while the other is non-allowed value. Then design and calculate individual efficiency coefficient of each indicators, utilize Delphi method to determine each indicator weight, and use weighted arithmetic mean or weighted geometric mean to obtain the average, that is, comprehensive efficiency coefficient. This method can be used to quantify the financial situation of corporate.
外文翻译对企业财务风险的预警和控制
