Internal cause analysis

(1) Debt scale

Debt scale refers to the size of an enterprise's total liabilities or the proportion of liabilities in the total funds. The scale of enterprise debt is large, the interest expense increases, and the possibility of insolvency or bankruptcy due to the decrease of income also increases.

At the same time, the higher the debt ratio, the greater the degree of financial leverage = [profit before tax and interest/(profit before tax and interest)] of the enterprise, and the change range of shareholders' income will also increase. Therefore, the larger the debt scale, the greater the financial risk.

(2) Interest rate of debt

Under the condition of the same debt scale, the higher the interest rate of debt, the more interest expenses the enterprise bears, and the possibility of bankruptcy risk of the enterprise also increases. At the same time, the interest rate has a great influence on the change range of shareholders' income, because the higher the interest rate of liabilities, the greater the degree of financial leverage, and the greater the impact on shareholders' income.

(3) The term structure of liabilities

refers to the relative proportion of long-term and short-term loans used by enterprises. If the term structure of liabilities is unreasonable, such as short-term borrowing when long-term funds should be raised, or vice versa, it will increase the financing risk of enterprises.

The reasons are:

First, if an enterprise uses long-term loans to raise funds, its interest expense will be fixed for a long time, but if an enterprise uses short-term loans to raise funds, the interest expense may fluctuate greatly;

second, if an enterprise borrows a large amount of short-term loans and uses them for long-term assets, there may be a risk that it will be difficult to raise enough cash to pay off the short-term loans when the short-term loans expire. At this time, if creditors are unwilling to extend the short-term loans due to the poor financial situation of the enterprise, the enterprise may be forced to declare bankruptcy;

thirdly, the financing speed of long-term loans is slow, the acquisition cost is usually high, and there are some restrictive clauses.

analysis of external causes

(1) operational risk

operational risk is an inherent risk in the production and operation activities of an enterprise, which is directly manifested in the uncertainty of its profit before tax and interest. Operating risk is different from financing risk, but it also affects financing risk. When an enterprise is fully financed by equity, the operating risk is the total risk of the enterprise, which is completely shared by shareholders.

when an enterprise adopts equity and debt financing, due to the expansionary effect of financial leverage on shareholders' income, the volatility of shareholders' income will be greater, and the risk assumed will be greater than the operational risk, and the difference is the financing risk. If the enterprise is not well managed and the operating profit is not enough to pay the interest expenses, not only the shareholders' income will go up in smoke, but also the interest will be paid with equity. In serious cases, the enterprise will lose its solvency and be forced to declare bankruptcy.

(2) Expected cash inflow and liquidity of assets

The principal and interest of liabilities are generally required to be repaid in cash (monetary funds). Therefore, whether an enterprise can repay the principal and interest on schedule according to the contract or not depends on whether the expected cash inflow of the enterprise is full and timely and the overall liquidity of assets. The cash inflow reflects the actual solvency, while the liquidity of assets reflects the potential solvency.

if an enterprise makes a mistake in investment decision, or the credit policy is too wide, it will face financial crisis if it cannot realize the expected cash inflow in full or in time to pay the due loan principal and interest. At this time, enterprises can realize their assets in order to prevent bankruptcy, and the liquidity (liquidity) of various assets is different, among which cash on hand is the strongest, while the liquidity of fixed assets is the weakest.

the overall liquidity of enterprise assets is different, that is, the proportion of various assets in the total assets is different, which has a great relationship with the financial risk of the enterprise. When the overall liquidity of enterprise assets is strong and there are more assets with strong liquidity, the financial risk is smaller; On the contrary, when the overall liquidity of enterprise assets is weak and there are more assets with weak liquidity, its financial risk is greater.

many enterprises go bankrupt not because they have no assets, but because their assets can't be realized in a short time, and as a result, they can't repay their debts on time, so they have to declare bankruptcy.

(3) Financial markets

Financial markets are places for financing. The debt management of an enterprise is influenced by the financial market. For example, the interest rate of the debt depends on the supply and demand of funds in the financial market when the loan is obtained, and the fluctuation of the financial market, such as the change of interest rate and exchange rate, will lead to the financing risk of the enterprise.

when enterprises mainly adopt short-term loans for financing, if they encounter financial tightening, monetary tightening and the interest rate of short-term loans rises sharply, interest expenses will increase sharply, and profits will drop. What's more, some enterprises will go bankrupt and liquidate because they can't pay the soaring interest expenses.

the internal and external causes of fund-raising risk are interrelated and interact with each other, and * * * both induce fund-raising risk. On the one hand, under the influence of operating risk, expected cash inflow, liquidity of assets and financial market, it is possible to lead to the financing risk of enterprises only under the condition of debt operation, and the greater the debt ratio, the higher the interest on liabilities, the more unreasonable the term structure of liabilities and the greater the financing risk of enterprises.

On the other hand, although the debt ratio of an enterprise is high, the enterprise has entered a stage of steady development, with low operational risk and little fluctuation in the financial market, so the financing risk of the enterprise is relatively small.

Extended information

Financing risk management methods:

In addition to the general conventional risk management methods, there are the following methods:

1. degree of financial leverage measurement method

There are many methods to measure debt financing risk, one of which is the degree of financial leverage measurement method.

Financial leverage mainly reflects the relationship between earnings before interest and tax and earnings per share of common stock, and is used to measure the influence of earnings before interest and tax changes on earnings per share of common stock.

financial leverage can be measured by degree of financial leverage. Degree of financial leverage means that the change rate of earnings per share of common stock is equivalent to the multiple of earnings before interest and tax's change rate.

Use the size of degree of financial leverage to judge its fund-raising risk. The greater the leverage coefficient, the greater the debt repayment pressure of enterprises, and thus the greater the financing risk; On the contrary, the smaller the degree of financial leverage is, the smaller the financing risk is.

2. Index analysis method

There are usually two kinds of index analysis methods: single index analysis and comprehensive index analysis. Single index analysis or univariate analysis, such as using financial indicators such as current ratio, quick ratio, cash payment ratio, asset-liability ratio, interest guarantee multiple, accounts receivable turnover rate, investment return rate and so on.

In the analysis, we should pay attention to the comparison with the average level of the same industry. If there is a big deviation from the average level of the same industry, such as the current ratio and quick ratio are too low and the asset-liability ratio is too high, it generally means that the enterprise has repayment risk.

comprehensive index analysis, also known as multivariate analysis, is to analyze the solvency of enterprises by using multiple financial indicators.

3. Probability analysis

Under normal circumstances, the risk of debt financing can also be measured by calculating the expected value and standard deviation of the profit rate of the enterprise's own funds. The specific steps are as follows:

(1) According to the data of the enterprise's business forecast, analyze the probability of various situations and the possible profit amount and profit rate;

(2) calculate the expected value and standard deviation of the profit rate of the enterprise's own funds;

(3) according to the standard deviation to determine the degree of debt financing risk of enterprises.

What needs to be pointed out here is that the standard deviation of profit rate of enterprise's own funds mainly reflects the degree of debt financing risk, while the standard deviation of profit rate of all funds before interest and tax only reflects the degree of business risk.

Baidu Encyclopedia-Financing Risk Management

Baidu Encyclopedia-Financing Risk