Contents of financial risk management
(1) Fundraising risk management
Funding risk comes from two aspects: one is debt repayment risk. Since the borrowed funds strictly stipulate the loan method, repayment period and repayment amount, if the enterprise has a lot of debts, and the operation management and cash management are not good, it may cause the enterprise to fail to repay the principal and interest on time, and there will be debt repayment risks. If the debt repayment risk cannot be resolved in a timely manner through financial reorganization and other means, it may further lead to the risk of bankruptcy liquidation. The second is the risk of income changes. This kind of risk mainly comes from the uncertainty of the benefit of capital use (that is, the existence of investment risk), which will have an amplification effect through the financial leverage of liabilities. Under the condition of a certain capital structure, the debt interest paid by the enterprise from the profit before interest and tax is relatively fixed. When the profit before interest and tax increases, the debt interest borne by each yuan of profit before interest and tax will decrease accordingly, thus Bring additional benefits to business owners, namely financial leverage benefits. Conversely, when pre-tax profits fall, there is a greater loss to owner earnings.
1. The following financial indicators can be selected to assess financing risk.
First, the current ratio is the ratio of current assets to current liabilities. It reflects the ability of an enterprise to repay due current liabilities with current assets that can be converted into cash in a short period of time. Second, the quick ratio is the ratio of quick assets to current liabilities. Quick assets are the balance of current assets minus unrealizable and unstable inventories, prepaid accounts, deferred expenses, and losses on current assets to be disposed of. Compared with the current ratio, the quick ratio is more accurate and reliable in evaluating the liquidity of corporate assets and its ability to repay short-term liabilities. Third, the earned interest multiple refers to the ratio of an enterprise’s profit before interest and taxes to interest expenses for a certain period of time, reflecting the degree to which profitability guarantees debt repayment. Fourth, the asset-liability ratio, also known as the debt ratio, refers to the ratio of the total liabilities of the enterprise to the total assets. It shows the proportion of the creditors' funds in the total assets of the enterprise, and the degree of protection of the assets of the enterprise to the rights and interests of creditors. Fifth, the financial leverage coefficient is the multiple of the rate of change in earnings per share equal to the rate of change in earnings before interest and taxes. Factors affecting the financial leverage coefficient include profit before interest and tax, capital scale, capital structure, fixed financial expense level and other factors. Under certain other factors, the higher the fixed financial expenses, the greater the financial leverage coefficient and the greater the financial risk.
2. Prevent and control financing risks.
First, improve the use efficiency of funds. This is the basis for preventing and controlling financing risks, because the funds for repayment of capital and interest of enterprises ultimately come from the income of enterprises. If the business management is poor and the company suffers long-term losses, even if the cash management is very effective, it will lead to the pressure that the company cannot pay the principal and interest of the debt on schedule. Second, moderate debt and optimize capital structure. Debt management is like a double-edged sword. While bringing higher returns to the enterprise, it may also bring greater risk and loss of financing. Therefore, enterprises must achieve moderate debt management. How to determine the "degree" of moderate debt is relatively complicated and difficult. Theoretically speaking, it can be determined with the help of the optimal capital structure theory, that is, the amount of financing that meets the minimum comprehensive capital cost and maximizes the enterprise value. In actual work, the choice of "degree" should be adapted to the specific situation of the enterprise. For some enterprises with good production and management and fast capital turnover, the debt ratio can be appropriately higher; for enterprises with unsatisfactory operations and slow capital turnover, their debt ratio should be appropriately low. Third, a reasonable mix of current liabilities and long-term liabilities. The proportion of current liabilities and long-term liabilities should be in line with the capital occupation of the enterprise. Generally speaking, most of the purchase of current assets should be raised by current liabilities, and a small part should be raised by long-term liabilities; fixed assets should be raised by long-term self-owned funds and most of long-term liabilities. This is a reasonable and stable debt strategy. It is very necessary to prevent and control financing risks.
(2) Investment risk management
After an enterprise obtains funds through financing activities, there are two types of investment: project investment and securities investment. Regardless of project investment or securities investment, there is no guarantee that the expected return will be achieved. The possibility that the actual use effect of the invested funds deviates from the expected result is the investment risk. Risks related to project investment mainly refer to business risks caused by problems in the external economic environment and business operations of the enterprise, while risks related to securities investment refer to the uncertainty of securities investment returns.
1. Assess investment risk.
First, the operating leverage coefficient refers to the multiple of the rate of change in earnings before interest and taxes equal to the rate of change in production and sales. It reflects the size of the project investment risk. The greater the operating leverage coefficient, the greater the risk faced by the investment project; on the contrary, the smaller it is. Second, the variance of the return on investment refers to the square difference between the return on investment and the expected return on investment under various possible situations. This indicator is usually used to assess the size of securities investment risk. If the return on investment changes over time, the composite variance of the return on investment for different periods should be calculated. The greater the variance and comprehensive variance of the investment return rate, the greater the risk of the security.
2. Prevent and control investment risks.
First, strengthen the feasibility study of the investment plan. If an enterprise can reasonably predict the future income before investment, exclude the high-risk and low-yield schemes, and only invest funds in those feasible schemes, it will play a very important role in preventing and controlling investment risks. Second, use the portfolio theory to make a reasonable investment portfolio. According to the portfolio theory, when other conditions remain unchanged, the smaller the correlation coefficient of the returns of different investment projects, the greater the ability of the portfolio to reduce the overall investment risk. Therefore, in order to achieve the purpose of diversifying investment risks, attention should be paid to analyzing the correlation between investment projects when making investment decisions. When a company invests in securities, it can purchase securities in different industries to reduce the correlation coefficient; if it purchases securities in the same industry, it should try to avoid buying all the securities of the same company. When investing in projects, enterprises should also pay attention to diversification while highlighting their main business, so that multiple industries and products can complement each other in terms of profit and time, so as to maximize the diversification of investment risks.
(3) Fund recovery risk management
Specifically, it includes three aspects:
1. Identify capital recovery risks.
The risk of capital recovery mainly refers to the risk caused by the uncertainty of the time and amount of the recovery of accounts receivable. One is the uncertainty of timing, which is expressed as the risk of delinquency, that is, the risk of customers paying beyond the stipulated credit period. The general process of the capital movement of an enterprise is: monetary capital—production capital—settlement capital—money capital. The risk of arrears of accounts receivable interrupts the third chain of the above-mentioned capital cycle, resulting in the failure to recover the settlement funds of the enterprise in time and the relative shortage of reproduction funds . The second is the uncertainty of the amount, which refers to the risk that accounts receivable cannot be recovered and form bad debts. Obviously, if the accounts receivable cannot be recovered and become bad debts, it will inevitably cause a direct loss to the cash flow of the enterprise. In addition, since the tax paid on this part of bad debts cannot be refunded, the enterprise suffers greater losses.
2. Assess capital recovery risk.
First, the accounts receivable turnover rate is the ratio of the net main business income to the average accounts receivable balance within a certain period of time, reflecting the turnover rate of accounts receivable. Second, the payback period of accounts receivable reflects the average time required for enterprises to collect accounts receivable. If the recovery period of accounts receivable is long, the turnover rate of accounts receivable is low, indicating that the recovery of funds is slow and the risk of recovery of funds is high; on the contrary, it is low. Third, the bad debt loss rate is the percentage of bad debt losses incurred in the current period to all accounts receivable due in the current period. Fourth, the collection rate of accounts receivable is the percentage of accounts receivable that are effectively recovered in the current period to all accounts receivable due in the current period. Generally speaking, the greater the loss rate of bad debts, the smaller the collection rate of accounts receivable, indicating that the risk of capital recovery the company bears is greater; conversely, the smaller it is.
3. Prevent and control the risk of fund recovery.
First, choose a reasonable sales method and settlement method. For customers with good financial status and credit status, we adopt the method of credit sales, and control the accumulated credit sales amount within the credit limit, and adopt less risky settlement methods such as installment collection and commercial drafts. For those customers with poor credit status and poor solvency, it is advisable to adopt cash sales as much as possible, and corresponding settlement methods such as exchange and check. Second, formulate a reasonable collection policy and collect payment in a timely manner. For credit customers who have not settled their arrears after the due date, the enterprise should organize personnel to step up collection. At the same time, the primary and secondary should be distinguished, and flexible policies should be adopted according to the different time and specific circumstances of the overdue accounts receivable. Third, establish a bad debt reserve system. Enterprises should, in accordance with the principle of prudence, withdraw bad debt reserves for possible bad debt losses before they occur, so as to reduce the inflated profits in the current period and prevent the adverse effects of capital recovery risks.
Profit distribution is the last link of corporate financial management, which means that the net profit realized by the company is used to make up for losses, expand accumulation, improve collective welfare facilities for employees and distribute to investors in accordance with the order stipulated by law.
1. Identify benefit distribution risks.
There is a trade-off relationship between the surplus distributed to investors and the retained surplus left in the enterprise. If the enterprise deviates from reality and blindly pursues high returns to investors, it will inevitably result in insufficient retained earnings of the enterprise, which will adversely affect the future production and operation activities of the enterprise, and will also affect the interests of creditors. On the contrary, if the enterprise reduces the allocation to investors in order to reduce the demand for external financing, it will dampen the enthusiasm of investors and affect the reputation and value of the enterprise. Therefore, the income distribution risk refers to the different trade-offs and trade-offs in the way, time and amount of income distribution, which brings uncertainty to the value of the enterprise.
2. Prevent and control the risk of income distribution.
First, formulate a reasonable income distribution policy. Generally speaking, the company's income distribution policy depends on the company's actual profitability. Taking a joint stock limited company as an example, if the company's earnings are stable, it can issue higher dividends; otherwise, it can only issue lower dividends. The dividend policy at this time can reduce the risk of dividends not being paid and the stock price falling sharply due to the decline in earnings. It can also convert more earnings into investment, so as to increase the proportion of equity capital in the company's capital and reduce financial risks. Second, establish a good corporate image and shape investor confidence. Improper income distribution policy or frequent changes in income distribution policy may have adverse effects on the enterprise. At this time, enterprises should actively take measures to convey positive and favorable information to investors. It is especially worth noting that companies cannot disclose false information in order to restore investor confidence, otherwise, not only will it not be conducive to the improvement of corporate value, but it will increase the financial risk of the company.
To sum up, for enterprises to operate normally, preventing and controlling financial risks is an important task of financial management. Enterprises implement risk management activities such as risk identification, assessment, prevention and control in the four aspects of fundraising, investment, capital recovery, and income distribution. Effective implementation of financial risk management is conducive to maximizing corporate benefits and achieving corporate financial goals.