Analysis of the causes of corporate financing and risk control strategies

Financing risk is one of the major risks facing enterprises, financing risks can not be eliminated or avoided, but starting from their own business as long as you can control this risk in the analysis of the causes of corporate financing, based on the proposed corporate financing risk control strategy.

First, the causes of risk financing

1 internal risk financing analysis.
(1) debt too large. Large-scale corporate debt, the interest expenses increased, due to lower revenue solvency or bankruptcy caused by the loss of the possibility of increasing the same time, the higher the proportion of debt, the company's financial leverage [= EBIT ÷ (EBIT - interest)] greater shareholder returns greater magnitude of change, so the larger the debt, the greater the financial risk.

(2) inappropriate capital structure, which refers to the total amount of venture capital and borrowed capital in the equity capital ratio of inappropriate negative impact on earnings and the formation of financial risk. The greater the proportion of borrowed capital enterprise, the higher the debt ratio, financial leverage the greater the financial risk associated with the resulting greater. rational use of debt financing, a good ratio between debt capital and equity capital ratio between consolidated capital for enterprises to reduce costs, access to financial leverage and reduced financial risk is very critical.

(3) the inappropriate choice of financing is currently in China, where companies can choose the financing are bank loans, issuing shares, bonds, finance leases and commercial credit. Different methods of financing at different times have their own advantages and drawbacks, if you choose not appropriate, additional costs will increase business, reduce the company's share of interest, affect the cash flow and the formation of financial risk.

(4) the interest rate debt in the same size under the conditions of liability, the higher interest rate debt, interest costs borne by companies spending more and more, the greater the risk of bankruptcy. Meanwhile, the debt interest rate variation in returns to shareholders have a greater impact, because in EBIT under certain conditions, the higher interest rate debt, the greater the financial leverage, shareholder returns greater extent affected .

(5) credit trading strategies properly in modern society, the existence of inter-enterprise wide commercial credit if the credit rating of between companies is not comprehensive enough to take a longer period of collection of credit policy, will make a large number of long-term accounts receivable losses and if there is no practical, effective collection measures, and enterprises will lack sufficient liquidity to reinvest or to repay their due debts, thereby increasing the financial risk.

(6) the maturity structure of liabilities properly. This aspect refers to the short-term liabilities and long-term debt arrangements, the other is access to capital and the timing of repayment of debt, if debt maturity structure of the arrangement is unreasonable, for example, but should be used to raise long-term funds short-term loans, or short-term funds should be raised, but with a long-term loans, will increase the risk of corporate financing, so the debt should also consider the timing of debt and debt maturity choice of mode, so that enterprises in the debt repayment period will not because of cash-flow problem and can not repay debt obligations.

(7) improper sequencing financing. This risk is primarily concerned for the Corporation in the financing order, the required debt financing must be placed after the outstanding shares of financing, and to keep the interval if the release time, funding be out of order, the will inevitably increase the risk of financing, an adverse impact on business.

(2) external risk financing analysis.
(1) operational risks. Operational risk is the production and operation activities, the risks inherent in the direct performance of the enterprise EBIT uncertainty. Operational risk is different from the financing risk, but affect the risk of financing when the company full use of equity financing, business risk is the company's total risk, fully shared equally by the shareholders when the company uses equity financing and debt financing, due to leverage the expansion of the role of shareholder returns, shareholder returns will be greater volatility, the risk will be greater than operating risk, the difference is the risk of financing. If the business properly, operating profit is insufficient to cover interest charges, is not shareholder value evaporated, and use the equity to pay interest, when the company will lose serious solvency, was forced to declare bankruptcy.

(2) the expected cash inflows and liquidity of the assets. Liabilities to repay principal and interest generally require cash, so even if corporate earnings in good condition, but its ability to repay principal and interest under the contract, but also the company's cash inflows expected is full, timely and liquidity strength. cash inflows reflect the reality of solvency, liquidity of the assets reflects the potential solvency. If the business investment decisions or credit policy is too great, can not full and timely realization of expected cash inflows to cover the loan principal and interest due, will face a financial crisis at this time, companies can cash in order to prevent the bankruptcy of its assets liquidity of various assets (liquidity) is not the same , where the most liquid cash, fixed assets, liquidity weakest.'s overall liquidity of assets that various types of assets in the share of total assets, the financial risks of the enterprise is very large, many companies are not bankrupt no assets, but because their assets can not be realized in a relatively short period of time, the results can not repay the debt and bankruptcy. Links to free download

(3) financial market financial markets, financial intermediation is the place. Corporate debt management to the financial markets, such as debt interest rate on borrowings of funds in financial markets supply and demand. Financial market volatility, such as interest rates, exchange rate movements will lead to risk of corporate financing, when enterprises are mainly short-term loan financing, such as the face of financial austerity, monetary tightening, short-term borrowing interest rate rises, it will lead to sharp increase in interest costs, lower profits, What is more, some companies can not pay because of rising interest costs and bankruptcy liquidation.

Second, the financing of risk control strategies

1 establish a correct concept of risk.
Enterprises in the daily financial activities must be prepared to establish the concept of risk, enhance risk awareness, following tasks: ① careful analysis of the financial management of the macro environment changes, so that enterprises in production and business and financial activities of the ability to maintain flexibility to adapt ; ② improve risk values; ③ efficient financial management of institutions set up, configure, high quality financial management, sound financial management rules and regulations, strengthen the financial management of the work; ④ rationalizing financial relations within the enterprise to continuously improve the financial management sense of risk.

(2) optimize the capital structure.
Optimal capital structure is defined as the maximum acceptable risk financing business within the lowest total capital cost of the capital structure, the largest debt financing risk can be expressed as a percentage. A company that only equity capital and no debt capital, although there is no financing risk However, the higher the total cost of capital, not to maximize revenue; if too much debt capital, the company's total capital cost is reduced, revenue can be increased, but funding has increased the risk, therefore, companies should determine an optimal capital structure, financing and risk trade-off between financing costs and only the appropriate risks and financing costs of financing match, in order to enable enterprises to maximize the value.

3 clever dance 'double-edged sword.'
Enterprises should strengthen the financial leverage of the binding mechanism, consciously adjust the capital structure and debt capital in the equity capital ratio of relationship: an increase in assets, profitability, the increase in debt ratios, increase financial leverage, financial leverage full benefits; when assets profit rate of decline, timely lower debt ratio, to guard against financial risks. financial leverage is a 'double-edged sword': used properly, can improve the value of the business; used inappropriately, it will result in loss of business, reducing the value of the business.

4 to maintain and improve liquidity.
Solvency of enterprises depends directly on its debt and liquidity of the assets. Enterprises according to their business needs and production characteristics of current assets to determine the size, but in some cases can take steps to improve the relative liquidity of the assets. liquid assets in a reasonable business arrangement structure of the process, not only to determine the ideal balance of cash, but also to improve the quality of assets by maturity debt than cash (net operating cash flow ÷ current maturity of the debt), cash total debt ratio (operating net cash flow ÷ total debt) and cash flow debt ratio (net operating cash flow ÷ current liabilities) and ratio analysis, research funding programs. The higher these ratios, the ability of enterprises to take stronger debt.

5 a reasonable period of the arrangement of financing combinations, good repayment plan and prepare.
Financing arrangements for two kinds of enterprises in the ratio must be between the risks and benefits be weighed against the length of the period by the use of funds to organize and mobilize the corresponding term of debt financing, risk-averse response is one of the company must take appropriate funding policy, that the best use of owner's equity and long-term debt to meet the business a permanent current assets and fixed assets, needs, and the temporary liquidity needs through short-term liabilities to meet, so that not only avoids the risk of high-risk type of policy pressure, but also avoid the type of sound policy and a waste of idle funds.

6 after the first period outside of the financing strategy.
Source of financing refers to the enterprise through the provision for depreciation of fixed assets, amortization of intangible assets and sources of funding and the resulting formation of retained earnings and increase sources of funding. Companies with capital requirements, should follow after the first period, the first order of debt financing after the stock, namely: first consider the source of financing, before considering external finance; external financing, first consider debt financing, equity financing before considering .'s own capital adequacy or profitability of the business reflects the strength and level of ability to obtain cash.'s own capital more abundant, more stable financial base of enterprises, the ability to withstand financial risks, the stronger. more equity capital, but also increase the flexibility of corporate financing when companies face better investment opportunities and external financing constraints and relatively harsh, if there's sufficient capital on its own will not be lost for good investment opportunities. Links to free download Center

7 of interest rates, exchange rates, reasonable arrangements for financing.
When interest rates at a high level or at the transition from high to low, minimal funding, the need to raise funds, should be taken to a floating rate interest-bearing manner, when the interest rate at a low level, the more favorable financing, but should avoid excessive funding when funding is unfavorable, should be minimal funding or only raise much-needed short-term operating funds when interest rates from low to high transition, should raise the demand for long-term funds of funds, maximize the use of fixed-rate interest-bearing way to keep lower cost of capital. In addition, due to economic globalization, free flow of capital in the international community, international economic exchanges between the increasing risk of exchange rate changes on the impact of corporate finance is also growing, so companies engaged in import and export trade should be based on changes in the exchange rate to adjust financing programs.

8 to establish a risk prediction system.
Enterprises should establish a risk automatic warning system in the form of developments, status monitoring, quantitative measure of financial risk critical point in time that may occur or has occurred does not match with the expected changes to reflect. Control the use of financial leverage debt ratio, with The total capital cost comparison method to choose the minimum total capital cost of the financing portfolio, the cash flow analysis, to ensure sufficient funds needed to repay debt. Links to free download


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