The financial risks of corporate debt financing are mainly manifested in the following aspects: 1. The increase of debt pressure. If enterprises use debt financing to pay the cost of M&A, there are three possible risks: ① high interest expenses; (2) the opportunity loss brought to the enterprise by the restriction of debt contract; ③ The pressure of future repayment. The increase of debt cost will lead to the continuous expansion of the asset-liability ratio of enterprises, which will greatly increase the possibility of financial crisis or bankruptcy of enterprises. 2. Control the dilution of equity. If an enterprise uses stock financing to pay the cost of M&A, the possible risk is that it will lead to the dilution of the equity of the original shareholders of the enterprise, and the consequence is that these shareholders (including the enterprise itself) will partially or completely lose the control or claim of the residual income. 3. Fluctuation of performance level. The fluctuation of performance level not only refers to the change of enterprise's profit before tax and interest (EBIT) level, but also includes the drastic fluctuation of earnings per share (EPS). Under debt financing, the change of EBIT will cause EPS to fluctuate to a greater extent, thus increasing the possibility of financial crisis or bankruptcy of enterprises. Performance fluctuation is an extremely bad signal, which may bring various opportunities (such as reputation loss) to enterprises. 4. Loss of investment opportunities. Corporate debt financing may not only increase huge debts for enterprises, but also consume a lot of their own capital. In this case, even if enterprises are faced with good investment opportunities, they can only flinch. The loss of investment opportunities may reduce the ability of enterprises to obtain income, and then increase the financial risks of enterprises. 5. Shortage of cash stock. Enterprises may consume a lot of monetary funds in debt financing. Even if the net assets of enterprises are very rich, they may cause various problems due to the lack of cash stock, thus increasing the possibility of financial crisis. Second, the identification method of financial risks of enterprise debt financing In order to better prevent the financial risks of debt financing, its core premise is to identify various financial risks in advance, and its common methods mainly include the following: 1. Leverage method. Leverage analysis is a narrow measure of financial risk. The level of financial risk is preliminarily identified by calculating leverage coefficient, and its indicators include degree of financial leverage and asset-liability ratio. DFL=EBIT/(EBIT-I)=△EPS/△EBIT where: I is interest expense; DFL refers to degree of financial leverage, which reflects the greater fluctuation of earnings per share (EPS) caused by the change of enterprise's profit before tax and interest (EBIT). The greater the DFL, the higher the financial risk of the enterprise. RLA (asset-liability ratio) is the core index to measure the financial risk health of enterprises. The higher the RLA, the higher the financial risk of the enterprise. When the RLA is greater than 5%, it is generally considered that the financial risk level of the enterprise is high. When the RLA is close to 1%, it indicates that the financial risk of the enterprise is on the verge of bankruptcy. 2. EPS method. EPS analysis method mainly measures the expected change of earnings per share of purchasing enterprises before and after debt financing, which belongs to the measurement method of financial risk in a broad sense. EPS=[(EBIT-I)(1-t)]/Q where: EPS is the earnings per share of the enterprise; I is interest expense; T is the weighted income tax rate; Q is the total number of shares issued. When the EPS after debt financing is greater than that before debt financing, it shows that the decision-making behavior of debt financing is reasonable, and vice versa. 3. Equity dilution method. Stock dilution method mainly compares the changes of original shareholders' equity structure before and after debt financing. It belongs to a broad measure of financial risks in M&A.. RIE=(Q+Q1)/(Q+Q1+Q2)RIE is the dilution ratio of shares, which reflects the ratio of the number of shares with voting rights controlled by the original shareholders of the enterprise to the total number of shares with voting rights, where: Q is the number of shares with voting rights held by the original shareholders of the enterprise before debt financing; Q1 is the number of newly issued shares with voting rights increased by the original shareholders of the enterprise during debt financing; Q2 is the number of newly issued shares with voting rights held by the new shareholders of the enterprise at the time of debt financing. When the RIE changes dramatically before and after debt financing, it shows that debt financing will bring huge risk of equity dilution to the original investors of the enterprise. If the RIE after issuing new shares is less than 5%, it means that the financial risk of equity dilution is higher, on the contrary, it means that the financial risk of equity dilution is lower. 4. Cost-benefit method. Cost-benefit analysis refers to comparing the cost and benefit levels of debt financing. It belongs to the measurement method of financial risk of generalized debt financing. RCR=C/RRCR is the cost return rate of corporate debt financing, where: r is the expected return of debt financing. It includes expected benefits such as cost saving, risk diversification, early utilization of production capacity, acquisition of intangible assets and realization of synergy, as well as tax-free concessions; C the expected cost of financing liabilities. It includes direct purchase expenses, increased interest, issuance expenses, commission and control costs, and various opportunity losses (such as the opportunity cost of retained earnings consumption and the loss of good investment opportunities). When RCR is less than 1, it means that the expected income is greater than the expected cost, so the debt financing behavior is reasonable, and vice versa. 5. Cash stock method. It refers to comparing the expected cash stock level of enterprises before and after debt financing to see whether the cash level is the best and safe. The commonly used method is to calculate the cash current asset ratio and the cash total asset ratio. Cash current assets ratio: RCCA=C/CA Cash total assets ratio: RCA=C/A, where: C is the generalized cash stock of the enterprise, including cash on hand, bank deposits and short-term investments; CA is the current assets of the enterprise; A is the total assets of the enterprise. The lower RCCA and RCA after debt financing, the higher the financial risk of cash shortage faced by enterprises, and vice versa. 6. Model method. Model analysis refers to the method of judging the financial risk of debt financing by means of statistical and mathematical model construction. The most common way is to establish a regression analysis model to identify whether the enterprise is facing excessive financial risks. Financial risk level Cr = a+a1X1+AX2+a3X3+…+Anxn+E, where: A, A1, a2, A3, …, an is a coefficient value; X1, x2, x3, …, xn are various financial risk factors; E is the residual model analysis method, which can estimate a standard value (CR) for measuring financial risk according to historical data in advance. When the expected CR after debt financing is greater than CR, it means that the financial risk of the enterprise is high, and vice versa. Third, the control countermeasures of financial risks in debt financing After identifying various financial risks in debt financing, enterprises should take various effective countermeasures to reduce or eliminate the possibility of financial crisis and bankruptcy. There are three countermeasures: 1. Accept risks. If debt financing may bring risks to enterprises in the short term, such as the increase of asset-liability ratio, the dilution of corporate equity, the loss of investment opportunities, and the fluctuation of performance level, but in the long run, the target enterprise of debt financing may have strategic significance, such as synergy. If the expected income after debt financing is higher than the expected cost, the enterprise can make a strategic decision for the target enterprise of debt financing. In addition, enterprises should also establish the following risk management systems: First, the establishment of risk funds. Including bad debt provision and impairment provision; The second is to equip specialized personnel to predict, analyze and report financial risks; The third is the application of risk analysis technology, such as real-time financial risk early warning system. 2. Transfer risks. Risk transfer refers to the strategy that an enterprise transfers part or all of its financial risks to others by means of joint ventures or joint ventures with other enterprises or individuals. There are many ways for enterprises to transfer risks, and different risk transfer policies can be adopted according to different risk reasons. 3. Avoid risks. Risk avoidance means that if an enterprise has a variety of debt financing schemes to choose from, it can give up the debt financing scheme with high financial risk. For example, when the expected income of corporate debt financing is far lower than the cost of M&A, or leads to a sharp increase in asset-liability ratio and a serious decline in earnings per share, the debt financing scheme should be abandoned and other reasonable schemes should be considered separately.