What are the causes of financial risks? How to prevent it?

Financial risk, also known as financing risk or financing risk, refers to the risk that should be borne by ordinary shareholders because of debt financing. It can also be defined as the risk that ordinary shareholders bear beyond the basic operating risk because they need to make fixed regular expenditures to raise funds by using debt or preferred shares. It is the risk associated with enterprises and their financing methods, and it is the risk brought by enterprises adopting different financing methods due to financial difficulties. I. Current Situation of Financial Risks of Enterprises in China Some enterprises in China, especially state-owned enterprises, generally have low profitability and serious losses, and some are even on the verge of insolvency. Although there are many reasons for this situation, ignoring financial risks is one of the important reasons for the poor management of most enterprises. Financial risk objectively exists in all aspects of enterprise financial management, which will have a great impact on enterprise production and operation. Therefore, enterprise employees, especially enterprise managers, can only ensure the survival and development of enterprises and minimize possible risk losses by establishing financial risk awareness, studying the causes of financial risks and their prevention, being good at making scientific predictions about the uncertainties brought about by environmental changes, and taking various preventive measures predictably. Second, financial risk analysis In financial management, only by fully understanding the basic characteristics of financial risks, correctly identifying financial risks, correctly analyzing and clarifying their causes can we prevent and resolve financial risks. (1) The basic characteristics of financial risk 1 are related to debt management. Financial risks are always associated with liabilities, because they are caused by paying off due debts. Without debt, the capital of an enterprise depends entirely on the investment of investors, so there is no financial risk. 2. Related to investment. Generally speaking, enterprises borrow money for two main purposes: one is to expand reproduction, expand scale and form economies of scale; The second is to invest in other enterprises, diversify development and diversify business risks. So there is no investment and no financial risk. 3. Corresponding current assets. Because the corporate debt corresponding to financial risk must be repaid in cash, the main sources of corporate cash are: sales realization, accounts receivable recovery, inventory realization, investment recovery and so on. , all related to the current assets in the balance sheet. 4. Related to investors. Financial risk is an additional risk that enterprise investors take after debt financing, so it is closely related to investors. (B) the causes of financial risks of enterprises in China. There are many reasons for the financial risks of enterprises in China, and the specific reasons for the formation of different financial risks are not the same, both external and internal. Financial risk is caused by decision-making mistakes, poor management and lack of risk awareness, and exists in all aspects of financial management. 1, changes in institutional environment. Such as industrial policy, interest rate, the developed degree of capital market, inflation and so on. The impact of interest rate changes on debt financing risk is manifested in the enterprise financing at an inappropriate time or in an inappropriate way. Continued inflation will make the capital demand of enterprises continuously expand, and the capital supply is prone to shortage, which will bring many hidden dangers to the debt financing of enterprises. If the decision is improper, it will bring greater financial risks. 2. Poor liquidity of assets is the direct cause of the financial crisis. Liquidity of assets refers to the ability to convert assets into cash and maintain their purchasing power. Financial risk is closely related to the liquidity of assets. Lack of funds, inventory backlog and other issues are the performance of weak liquidity of funds, but also the fuse of the financial crisis. If an enterprise can't replace assets at a suitable price, or can't get the needed funds at any time at a cost lower than the rate of return, it will inevitably lead to asset liquidity risk and financial crisis. 3. From the perspective of decision-making. There are two main reasons for financial risks: first, there is a lack of sufficient and true information in decision-making. In investment decision-making, decision-makers cannot grasp the possible results of future changes in decision-making matters in advance, or they cannot obtain sufficient and useful information, or the cost of obtaining information is too high, which makes decision-makers make subjective assumptions; Second, the future results of decision-making matters are restricted by the institutional environment, and the uncertainty of the institutional environment is beyond the control of decision-makers, which makes financial decisions face risks. Decision-making mistakes make the investment project unable to obtain the expected income, and the investment cannot be recovered on time, which brings huge financial risks to the enterprise. 4. The capital structure of enterprises is unreasonable. Capital structure refers to the composition and proportion of long-term capital (long-term liabilities, preferred shares and common shares) of enterprises. Unreasonable capital structure leads to a heavy financial burden and a serious lack of solvency, which leads to financial risks. It has become a common practice for enterprises to expand capital sources and exert financial leverage through debt management, but high debt has not brought high profits. How to improve the capital structure and avoid financial crisis is a problem that every enterprise must seriously consider. 5. Moral hazard is widespread. In the market economy, fraud, breach of contract, opportunism and other phenomena are called moral hazard. Moral hazard has a great influence on corporate finance, mainly manifested in low credit. This is mainly manifested in the serious distortion of the relationship between breach of contract and creditor's rights and debts. A large number of credit sales and credit purchases make the solvency of enterprises depend on the credit degree of other enterprises. On the other hand, the low performance rate of economic contracts affects the normal operation of enterprise production, increases the storage cost of commodity inventory, causes excessive capital occupation and increases the financial risk of enterprises. Third, the prevention of corporate financial risks The prevention of financial risks is to dynamically control risks, rather than deliberately reduce risks. Enterprises that dare to take risks can often get high returns from high risks by making full use of favorable opportunities. To prevent and resolve financial risks, we should mainly do the following work: 1. Carefully analyze the institutional environment of financial management and its changes, and improve the adaptability and adaptability of enterprises to changes in the financial management environment. In order to prevent financial risks, enterprises should carefully analyze and study the ever-changing financial management environment, grasp its changing trends and laws, formulate various emergency measures, adjust financial management policies in a timely manner, change management methods, improve their adaptability and adaptability to changes in financial management environment, and reduce financial risks brought to enterprises due to environmental changes. 2. Enhance the liquidity of enterprise assets. The first is to store current assets, that is, to maintain a certain proportion of easy-to-realize assets in the portfolio. The second is to buy liquid assets, that is, to achieve variability by selling liquid inventory. Enterprises must weigh the advantages and disadvantages, obtain liquid assets in a reasonable way, and avoid the losses caused by liquidity shortage and excess at the lowest cost through the rational allocation of enterprise asset structure and the rational use of financing ability. 3. Improve the scientific level of financial decision-making and prevent financial risks caused by decision-making mistakes. In order to prevent financial risks, enterprises must adopt scientific decision-making methods. In the process of decision-making, we should fully consider all kinds of factors that affect decision-making, try our best to adopt quantitative calculation and analysis methods, and use scientific decision-making models to make decisions. We should carefully analyze and evaluate various feasible schemes, choose the best decision-making scheme from them, and avoid subjective assumptions. 4. Enterprises should establish a reasonable capital structure to avoid financial risks. First of all, we should establish a restraint mechanism for capital accumulation and constantly enrich capital. Secondly, reasonably determine the scale of liabilities according to the actual situation of the enterprise. Thirdly, seize the opportunity of borrowing money, assess the situation and make reasonable decisions. Finally, predict the use effect of debt financing, weigh the cost and benefit, and optimize the debt structure. The factor that determines the capital structure is the financing decision. Match different debts reasonably according to the time limit, reduce the pressure of debt repayment, and ensure the smooth capital turnover of enterprises. The amount of financing directly determines the capital structure. Enterprises should strive to make the capital structure optimal and the financing cost lowest. 5. Avoiding the influence of moral hazard on the company's finance. Risk factors should be controlled to prevent the occurrence of risks. Externally, we should fully and accurately grasp the information of the market and competitors, eliminate the adverse effects of information asymmetry on ourselves, evaluate the credit of the counterparty, and formulate an effective contract that does not harm our own interests through consultation. For the enterprise losses that should be improved, we should strengthen cooperation with the insurance industry, transfer the risks outward, and reduce the heavy losses caused by counterparty default and opportunism; Close relationship with financial institutions and political and legal departments in order to get timely help. In a word, almost all decisions of enterprises are made under the conditions of risk and uncertainty. Without risk, it is impossible to correctly evaluate the salary level of enterprises. Financial risks are inevitable. Correctly analyzing and preventing financial risks is of great significance to the survival and development of enterprises. We must make a comprehensive analysis in order to find out the essence of the problem.