Analysis of the causes of corporate financial risk and its preventive measures
Paper Keywords: corporate finance; financial risk; causes; preventive measures
Abstract: Financial risk as a risk of economic phenomena, has become the core of
modern financial theory. The formation of corporate financial risk, both corporate finance activities in the environment in which such objective factors, but also a weak awareness of enterprise risk and other subjective reasons. How objective analysis and
understanding of financial risk, and take various measures to control and prevent the occurrence of financial risk, is a matter of business survival and development of important subject.
Financial risk as a risk of economic phenomenon, has become the core of modern
financial theory. The understanding of the financial risks are narrow and a broad distinction. Financial risk is often narrowly defined as the risk of debt financing, is an enterprise due to borrowings to the enterprise's financial results (profits or shareholder
gain) caused by uncertainty. Accordingly, the financial risks faced by modern enterprises inevitable result of market competition, particularly in the development of China's market economy under conditions of imperfect even more inevitable. How
objective analysis and understanding of financial risk, and take various measures to control and prevent the occurrence of financial risk, is a matter of business survival and development of important subject.
First, the reasons for the formation of enterprise financial risk
An. Objective reasons
Business environment in which complex financial activities. Financial management, corporate financial decision-making environment is difficult to change the external
constraints. Financial management environment is the complexity and variability, the external environment change may bring some opportunities for businesses may also make enterprises are facing a threat. If the financial management system can not adapt
to the complex and changing external environment, is bound to bring difficulties to enterprises.
Capital structure is irrational, excessively high proportion of debt financing. The capital structure refers to the enterprises of various composition and ratio between
capital and capital structure, the core issue of corporate debt funds in the proportion of all the funds. A reasonable arrangement and operation of the debt help reduce business cost of capital, to give over the interests of shareholders. Conversely, when interest
rates lower than the interest rates pre-tax profit of funds, the firm debt more to borrow
funds and the higher the proportion of own funds, enterprise funds owned by the lower profit margins, and in severe loss of business will occur or even bankruptcy. At this
time, the larger the debt, the greater the financial risk.
Interest rates, exchange rate movements. As the corporate debt is generally a fixed interest rate, if the downward trend in the future of interest rates, companies still have
to original contractual interest rates to pay higher interest rates, thereby increasing the enterprise's financial risk; if the future of interest rates on the rise, Although the original contract companies just to pay lower interest rates, interest rates, but with
rising interest rates, currency appreciation pressure, once the currency appreciation, the enterprise payback burden, thereby increasing the financial risk of enterprise. If companies with foreign financing, changing the exchange rate will inevitably create
2. Subjective reasons
Unreasonable financial relationship within the enterprise, operating in poor condition, improper use of funds led to financial risk.
Weak risk awareness. Enterprise Management">Financial Management personnel lack of knowledge the objectivity of the financial risk, control, bias and to deal with emergency crisis of lack of experience, enterprise risk control and prevention ability is weak, leading to financial risk occurs helpless.
Financial decision-making lack of seriousness and scientific. China's enterprises experience in financial decision-making widespread the phenomenon of decision-
making and subjective decision-making, which led to the decision-making mistakes
often occur, resulting in financial risk. When making investment decisions without in-
depth market research and scientific proof, blind investment, the formation of non-
performing assets or huge losses, thus increasing the enterprise's financial risk.
Second, financial risk prevention techniques and measures
1. Financial Risk Technology
Dispersion method. As the market information asymmetry and the uncertainty of market demand, companies can joint venture between enterprises, a variety of
operating and external investment in a diversified way of spread financial risk.
Evade law. Enterprises in project planning should be a comprehensive evaluation of various programs of financial risks, ensuring the achievement of objectives under the
premise is expected to select less risky options to achieve the purpose of avoiding financial risks.
Transfer Act. Enterprises according to different risks, different methods of risk transfer, the transfer of some or all of the financial risk borne by a risk to others the prevention and control methods.
Depression. The risk of incident is attributable to its objective necessity, but also accidental. Sometimes, despite a number of prevention and control measures, but the
risk of loss is still occurring. Therefore, enterprises need to rationalize resources, even if a risk event occurs, you will not be a significant loss of the enterprise as a whole.
2. Financial risk prevention measures
A careful analysis of the financial management of the macro environment and its changes in financial management to improve business environment, adaptability and resilience. Business external environment affecting the enterprise's financial risk of
external factors, which are can not be changed, but there is a significant impact on corporate financial risk, so that changes in the environment is a double-edged sword,
bringing both opportunities hidden danger .
Strengthen the corporate financial risk control. Enterprise's financial risk control, including: funding risk, investment risk, capital risk and recovery risk of four kinds of income distribution. We must strengthen enterprise financial risk control and management of corporate financial activity on the response to the whole process of effective management. In a market economy conditions, the fund-raising activities are a
starting point for enterprise production and business activities, management misconduct will raise efficiency in the use of funds of great uncertainty, the resulting
risk financing. Financing risks for different causes, prevention and control measures for risk financing are: First, to improve capital efficiency, enhance profitability and solvency, reduce investment risks. Second, focus on fund-raising leverage, moderate
debt, optimizing the capital structure, access to financial leverage benefits. Third, rational management of funds to maintain liquidity of the assets. Fourth, establish a
sinking fund to enhance your own risk capacity. Sinking fund is the enterprise in order to repay debts according to plan in advance extract of a reserve fund. Mandatory sinking fund established to enhance the solvency of the enterprise, but it reduced the corporate discretionary funds, result in depletion of cash, but also by increasing the cost of capital of enterprises. Reposted elsewhere in the paper for free download http://
Corporate finance activities in the third aspect is the recovery of funds. Recovery of funds to prevent and control the risk measures: First, according to the customer about the likelihood of payment, choose a different selling methods. Accounts receivable is the risk of causing an important aspect of recovery of funds. The recovery of funds for the control of risk, corporate credit situation can only be good, strong solvency, to corporate credit standards for customers to take credit approach, and will control the total amount of credit within the credit limit. Second, select the appropriate method of settlement. For the profitability of big, strong solvency, credit a good customer, you can choose the risk of relatively large settlement, so that the two sides is conducive to buying and selling and set up a partnership of mutual trust, expanding sales network,
simultaneous bad debt losses the possibility of fewer; On the contrary, the risk should be chosen relatively small, the binding ability of the settlement, so that helps to reduce bad debt losses. The third is to develop a reasonable debt collection policy, collection
and timely payment. After the occurrence of trade receivables, enterprises should take various measures to fight to recover funds on time, reducing business losses.
Control risk prevention methods, the establishment of effective risk prevention
mechanism for handling a correct understanding of business risk and financial risk relationship. Risk prevention is the enterprise in identifying risk, measure risk and risk research, based on the most effective ways to reduce the risk of adverse consequences
resulting from the behavior to a minimum. Corporate departments, and personnel, in particular the decision-making management of the enterprise must strengthen risk
prevention means, whether internal or external investment financing, and regardless is
to develop products or sell their products, should Forecasts predict possible risks and the business to bear capacity, strengthen enterprise management, infrastructure construction, strengthen enterprise management personnel, business training, enhance
their understanding of risk, risk analysis and risk prevention capacity, improve management decision-making level, in order to reduce blindness and business decision-
Continuously improve the financial management of the risk means to rationalize
financial relationship within the enterprise, so that responsibilities, rights, and interests of unity. For the financial management staff to understand the financial risks exist in all aspects of financial management, any part of the failures may give companies a
financial risk, financial managers must guard against the risk throughout the financial management from beginning to end. Enterprises should set up efficient financial management institutions, with high-quality financial management personnel,
standardize the rules and regulations, and strengthen the basic work, so that means the risk of financial management personnel continues to increase. At the same time within the enterprise must rationalize the various financial relationships. Must be clear of all
departments in the enterprise financial management of the status, role, and should bear responsibility, and give it the necessary powers, truly clearly define the roles, each performing its duties. The distribution of benefits, the company should take into
account interests of all parties to mobilize all sectors to actively participate in corporate financial management, thereby truly responsibilities, rights, and interests of unity, so that a variety of financial relationships within the enterprise clarity.
The introduction of science-based risk management procedures, strengthen the
system and build a sound financial risk management mechanisms, with live financial
risk management practices. Financial risk management is an identification and
assessment of risks, analyze risk causes, prevention and control risk, manage risk of loss of organic process, risk identification, assessment and analysis, determined on the basis of programs and measures to cope with the risks, with corporate financial
strategy and plan, optimize financial decision-making and control methods, a sound
financial information of the control system at risk a timely manner to reduce losses. Strengthen the system construction of the first to build customer management system,
strengthen customer credit adjustments, form a set of risk suited to the business of prevention system, the financial risks to a minimum. Secondly, the establishment of statistical analysis system, should be through the improvement of statistical analysis, to
detect problems and take appropriate measures to control. To re-establish a scientific
system of internal decision-making. Pairs of risky business decision-making and
financial activities, to the various functional departments within the enterprise carried
out rigorous review, evaluation, feasibility studies, through brainstorming, try to avoid errors caused due to personal decision-making risk.
In short, the existence of financial risk, would undoubtedly have a major impact on enterprise production and management. Financial risk management company should have sufficient attention to the causes of the financial risk and its prevention research and effective conduct of the financial risk control and management, monitoring and early warning, effective to reduce financial risk, and improve enterprise efficiency.
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