外文翻译---对企业财务风险的预警和控制

科技学院

毕业设计（英文翻译）

译文内容On the corporate financial risk early warning and control（对企业财务风险的预警和控制）

译文出处2010 International Conference on Future Information Technology

and Management Engineering

系别：专业：班级：学生姓名：学号：指导教师：

On the corporate financial risk early warning and control

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.

5. Financial flexibility

Financial flexibility means the capacity that corporate has to take effective measures to change the flow and time of cash flow for the purpose of adapting to unanticipated needs and opportunities, which is mainly related to the net cash flow generated by companies operating activities. Indicators reflecting financial flexibility include: working capital used to test the liquidity level of corporate total assets, ratio of total assets, redemption rate for due debt capital, ratio of actual net assets to tangible long-term assets, accounts receivable and inventory turnover rate, etc.

3. THE CONSTRUCTION OF EARLY WARNING MODEL IN FINANCIAL RISK

Financial managers can use computer technology (such as Excel financial analysis software) to integrate the financial risk indicators which need to be analyzed to design a "financial risk analysis model." Establish fundamental region of data (or establish a data table connection) and calculation analysis region, then create formulas and data connectivity relations for each analytical indicators in the cell of calculation analysis area in order to

automatically figure out the value of each indicator, finally compare the value of each indicator with industry-standard value or reference value, consequently get the early warning data at any time. For example，the values in the table are automatically generated after the establishment of analytical formulas-"short-term solvency ratio" and "long-term solvency ratio", while the data used in formulas are connected to the accounting statement of each period. Thus, when the data in the accounting statements of each period are updated, the analytical values which need to be calculated in the model are generated automatically to help financial executives analyze the situation of financial risks of each period timely .Other financial risk analysis models are also designed like this and analyzed integrated together.

4.STRENGTHEN THE FINANCIAL BUDGET MANAGEMENT OF ENTERPRISES (TO GROUP COMPANY AS THE EXAMPLE)

1.Build up the organization organization of finance budget management

Then the Legal Representative's management to the group finance budget work of group company is negative total responsibility, establish from relevant the working talent section constitute of finance budget management committee, mainly draw up the target, policy of finance budget, draw up the concrete measure and way of finance budget management, review, equilibrium finance budget project, the organization bottom reaches finance budget and moderates to solve finance budget to draw up with the problem in the performance, performance circumstance organize audit and investigate finance budget, speed up business enterprise completion finance budget target.

2.The norm finance budget draws up procedure and method

According to the whole development strategy of the group company, according to the procedure of "up and down combine, the ratings draw up, pursue the class gather", at decision of foundation up, put forward the business enterprise group finance budget target.Each budget carries out the finance budget that the section reaches under the budget committee according to the business enterprise finance target and policy and combines oneself characteristics and the performance condition of estimate and puts forward detailed this section finance budget project, the finance budget committee should carry on full moderate, put forward the opinion

of first step adjustment to the problem of detection, and the feedback give to carry out a section to give correction concerning the budget, again from finance budget committee pursue class the bottom reach each budget performance section performance.

3.Work well to control to control with after the event in the budgetary before the event control, matter

Each budget carries out a section to periodically report the performance circumstance of finance budget, to new circumstance, new problem and appear deviation bigger and important item, specially pay attention to check to seek reason to put forward the measure suggestion of improvement management management.Well make use of solid the information system carry on finance supervision

4.Well make use of solid the information system carry on finance supervision

The establishment, sound and internal finance supervises and controls a mechanism, is the effective measure that guards against and dissolves financial risk.Supervision in the inner part includes accountancy's control and management to control 2 types.The group finance supervises and controls a work establishment on the foundation of each finance budget and promise the capital structure of subsidiary is good, finance operation whole benefits according to business enterprise group, thus and more better guard against and control financial risk, promote business enterprise group of can keep on sex development.Is general to come to speak, can station a finance director general to the subsidiary, be responsible for the finance behavior that inspects a subsidiary;Canning also pass board of directors and supervisor will carry on supervision to the subsidiary.To the supervision result of subsidiary, mainly pass to investigate related index sign to carry on, like the cash ratio, liquidity ratio, bad property ratio and property loss ratio and clean property rate of return etc..

Finance information for business enterprise group to makes the most of solid to follow direct and control funds to flow to take up by getting rid of invalid funds, raise a funds use efficiency, ensure the realization of group finance target.

5. THE CONTROL ON FINANCIAL RISK

It will play a positive role for corporate development, if they have a good control on financial risk. Reducing financial risk will be beneficial for corporate to create a relatively

secure and stable operating environment. After establishing the system of financial risk analysis indicators, corporate should take timely monitoring on the situation of financial risk. Corporate should take measures to control them after finding risk signals. They can control financial risk from the following aspects.

1.Strong sense of risk. Corporate cannot constantly pursue high profits without considering the aftermath, and wantonly raise money to increase the financial burden. The amount of profit is not the sole criterion for the power of a company. Excessive debt can not only let corporate bear a heavy burden of interest, and once the process of reproduction is interrupted and obstructed, cash flow problems occur, and corporate cannot pay back debt on time, they will face the risk of loss in reputation, responsibility for compensation, which will even lead to bankruptcy. Corporate cannot run the risk of life threatening, and must foster a strong sense to control risk.

2. Establish the most favorable capital structure. Corporate consider their risk to tolerance acquire to choose the most on advantageous capital structure. Use the lowest capital cost and minimum risk maximum return investment, seeking the best match between risk and profit.

3.Choose the right financing way. On the basis of comprehensive consideration on funding cost, financial risk and other various factors, corporate should pick the following order of financing to control financial risk, which can reduce their financial risk to minimum degree. First, financing should start from internal accumulation. This way has small difficulty and little risk, which can preserve more loaning capacity for corporate. Second, if corporate raise money from outside, their first choice should be stock issue, then the last choice goes to bank loans, which can reduce the financial pressure of paying back principal and debt to the lowest limits.

4 Take the appropriate borrowing strategies. Although sometimes borrowing can increase the profit of corporate and improve cash however, however no matter under any circumstances, we should clear the expected return of borrowing in the changing corporate environment. If the expected return cannot be determined, corporate does not have the sufficient reason to borrow. Therefore, corporate must know when to borrow and when not to borrow. Only in this way, the financial risk can be controlled to prevent the financial failure caused by blind borrowing.

5, Maintain the high mobility of assets. A high degree of asset liquidity is an important guarantee for corporate to control financial risk and reduce financial burden. The capital is achieved more easily, liquidity is stronger, and the ability to withstand the financial risk is also stronger.

6. Maintain profitability. If the profit cannot meet the financial needs, corporate must rely on cash balances, sell short-term financial assets, or borrow more debt to make up funding gaps and increase the corporate financial risk.

Therefore, maintaining profitability, increasing capital, and reducing debt can effectively control financial risk.

REFERENCES

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[3] Finance Department and corporate division. Corporate Finance General [M]. Beijing: China Financial and Economic Publishing House, 2007

[4] Fan ling. Excel and financial management[M]. Beijing: Higher Education Press, 2007.

[5] Wang Lihua. On the Management of Financial Risk [J]. Forestry projects, 2004.

[6] P H Werhane，R E Freedman. Study on Control of Financial Risk. USA ：Black well Business，1998,17—18

对企业财务风险的预警和控制

刘敬忠

经济与贸易系

商丘工艺学院

商丘，河南省，中国