What is the risk analysis of enterprise investment and its countermeasures?

Enterprise financial risk exists in all aspects of enterprise financial management, and almost all enterprise financial decisions are made under the conditions of risk and uncertainty, especially under the imperfect market economy in China. The financial risks of Chinese enterprises include financing risk, investment risk, capital operation risk and income distribution risk. It is necessary to establish an enterprise financial risk identification system and an effective risk handling mechanism, improve risk management institutions, and further prevent enterprise financial risks.

[Keywords:] financial crisis, financial risk, early warning analysis

Enterprise financial risk refers to the uncertainty of financial situation caused by various unpredictable or uncontrollable factors in the process of financial activities, which makes the enterprise have the possibility of suffering losses. Financial risk objectively exists in all aspects of enterprise financial management. The existence of financial risks will undoubtedly have a great impact on the production and operation of enterprises. Therefore, it is of great significance to discuss the present situation, causes and preventive measures of financial risks in Chinese enterprises for reducing risks and improving efficiency.

First, the status quo of financial risks of Chinese enterprises

The financial activities of enterprises are generally divided into four aspects: fund-raising activities, investment activities, capital operation and income distribution. Accordingly, financial risks include financing risk, investment risk, capital operation risk and income distribution risk. Specifically, the financial risks of China enterprises are mainly manifested in the following aspects.

(A) unreasonable capital structure

Capital structure refers to the long-term capital composition of enterprises and its proportional relationship. Unreasonable capital structure will make enterprises have a heavy financial burden and a serious shortage of solvency, which will lead to financial risks. Most of the production and operation funds of Chinese enterprises come from self-owned funds and borrowed funds. Judging from the financial structure of state-owned enterprises, there are widespread problems such as high asset-liability ratio and excessive bank loans. According to the information released by the State-owned Assets Supervision and Administration Commission of the State Council, in the first half of 2005, among 169 central enterprises, the net assets increased less than 1% or decreased, and the capital accumulation was seriously insufficient. Fifty-two companies are over-indebted, and many companies' liquidity ratio is lower than the international warning standard (200%). The asset-liability ratio of some enterprises exceeds 80%, and some even exceed 100%. Once the market sales decrease, it is difficult to maintain the operation of funds by borrowing new debts to repay old debts. From the perspective of corporate debt structure, there are less long-term liabilities and too many short-term liabilities, and enterprises are highly dependent on banks. Enterprises rely too much on banks, and when there is a payment crisis, on the one hand, breaking promises increases financial risks, and on the other hand, loans overdue increases financing costs. It can be seen that there are big problems in the capital structure of Chinese enterprises.

(B) lack of scientific input

Enterprise investment includes domestic investment and foreign investment. In terms of foreign investment, investment decision makers of many enterprises have insufficient understanding of investment risks and blindly invest, which leads to huge investment losses and constant financial risks. Internal investment of enterprises is mainly fixed assets investment. In the process of fixed assets investment decision-making, many enterprises lack detailed and systematic analysis and research on the feasibility of investment projects. In addition, the decision-making is based on incomplete and untrue economic information, and the decision-making ability of decision-makers is low, which makes investment decision-making mistakes occur frequently, investment projects can not get expected returns, and investment can not be recovered on schedule, which also brings huge financial risks to enterprises.

(C) improper capital recovery strategy

Commercial credit widely exists among enterprises in modern society. In order to increase sales and expand market share, some enterprises sell products on credit. From the accounting point of view, this can increase the profits of enterprises, but a considerable number of enterprises do not know enough about the credit rating of customers in the process of credit sales, which leads to a large number of accounts receivable out of control, and a considerable number of accounts receivable can not be recovered for a long time until they become bad debts. On the other hand, among the current assets of Chinese enterprises, inventory accounts for a relatively large proportion, and many of them are backlogs. In the first half of 2005, the accounts receivable and inventory of central enterprises occupied 1.42 trillion yuan, accounting for 36% of the working capital. In all central enterprises, accounts receivable and inventory account for more than 50% of working capital. Assets are occupied by debtors and inventories for a long time, which makes enterprises lack sufficient liquidity to reinvest or repay debts due, which seriously affects the liquidity and security of enterprise assets.

(D) the income distribution policy is not standardized

Dividend distribution policy has great influence on the survival and development of enterprises. The choice of distribution mode will affect investors' judgment on the status and reputation of enterprises, thus affecting the source of funds of enterprises, and may also affect the investment decisions of potential investors. If the profit distribution policy of an enterprise lacks a control system, does not combine the realization of the enterprise, and does not make scientific distribution decisions, it will definitely affect the financial structure of the enterprise, thus forming indirect financial risks. Compared with the dividend policy generally adopted in the world, Chinese enterprises pay less cash dividends and replace them with allotment or bonus shares, which on the one hand intentionally or unintentionally encourages the speculative atmosphere in the securities market, on the other hand, it is not conducive to investors to form a correct investment concept. Moreover, the formulation of dividend policy of Chinese enterprises is often irregular, and the dividend distribution scheme is often changeable, which makes investors at a loss.

Second, the reasons for the formation of financial risks in Chinese enterprises

In market economy activities, enterprises inevitably have financial risks. The key is to understand the causes of risks, so as to be targeted and invincible. There are many reasons for the financial risks of Chinese enterprises, both external and internal. Generally speaking, the financial risks of Chinese enterprises mainly have the following four reasons.

(A) the financial activities of enterprises have not yet adapted to the ever-changing external economic environment.

The financial activities of enterprises are carried out in a certain environment, and are restricted by these environments, including the overall situation of the national economy and the prosperity of the industry, the adjustment of national credit and foreign exchange policies, the fluctuation of bank interest rates and exchange rates, the degree of inflation and so on. The unpredictable financial environment of enterprises is the external cause of financial risks, because these factors exist outside enterprises, and their changes are unpredictable and difficult to change for enterprises, which will inevitably affect their financial activities. For example, changes in interest rates will inevitably lead to interest rate risks, including the risk of paying too much interest, the risk of investment losses that generate interest, and the risk of not being able to fulfill debt repayment obligations; However, the financial management foundation of most enterprises in China is weak, lacking market concept and adaptability to changes in external environment. In the face of adverse changes in the external environment, they can't make scientific predictions, their responses are lagging behind, and their measures are ineffective, which will inevitably lead to financial risks.

(B) The internal financial relationship of the enterprise is chaotic and the decision-making is unscientific.

The confusion of internal financial relations is also an important reason for the financial risks of Chinese enterprises. In China, between enterprises and internal departments, between enterprises and superior enterprises, there are problems of unclear rights and responsibilities and chaotic management in fund management, use and benefit distribution, which leads to inefficient use of funds and serious capital loss, and cannot guarantee the safety and integrity of funds. There is a lack of overall coordination in procurement, production, sales, finance and market forecasting, resulting in serious losses of assets such as accounts receivable and inventory. When making investment decisions, we do not conduct in-depth market research and scientific demonstration, and blindly invest, resulting in non-performing assets or huge losses. Lack of scientific planning of capital structure and high comprehensive cost of financing lead to an increase in debt ratio and financial risks.

(C) the internal financial monitoring mechanism is not perfect

Internal financial monitoring is a very important and unique system in enterprise financial management system. In order to give full play to its functions, enterprises should not only set up independent organizations, but more importantly, establish a relatively complete, systematic and powerful internal financial monitoring system according to their own characteristics to ensure the efficient operation of the internal financial monitoring system. However, most enterprises in China have not established internal financial monitoring mechanism. Even if there is, the implementation of its financial supervision system is not strict, especially in some enterprises, which are combined with management and office, lack the accountability system for asset losses, turn a deaf ear to financial discipline, are difficult to effectively restrain, and are prone to financial risks.

(D) the quality of corporate financial personnel is not high, lack of risk awareness.

People are a very important condition for the operation of any system, and high-quality financial personnel are a rare asset for enterprises. As far as the present situation is concerned, the financial managers of Chinese enterprises are influenced by the traditional planned economy and limited by the professional education level, and their comprehensive quality and professional quality need to be improved. Their financial management concepts and methods, especially their professional ethics and professional judgment ability, can not meet the requirements of the market economy environment to a greater extent.

Third, the prevention of corporate financial risks.

How to prevent and resolve financial risks in order to achieve financial management objectives is the focus of enterprise financial management. The author believes that the following work should be done to prevent financial risks of enterprises.

On the Risk Management of Enterprise Finance

(A) the establishment of enterprise financial risk identification system

To guard against the financial risks of enterprises, we must first identify the financial risks of enterprises accurately and timely. Generally speaking, the following methods can be used to identify the financial risks of enterprises.

1. Establish an early warning system with "arman" model. This method was invented by Edward of America. In 1960s, Arman put forward a financial early warning system based on multivariate discriminant model. He used stepwise multivariate discriminant analysis to gradually extract five financial ratios with the most predictive ability, and established a Z-scoring model similar to the regression equation:

z = 0.0 12x 1+0.0 14x 2+0.033 x3×0.006 x4+0.999 X5

Where: X 1 = working capital/total assets; X2 = retained earnings/total assets; X3 = earnings before interest and tax/total assets; X4 = total market value of common shares and preferred shares/total book value of liabilities; X5 = sales revenue/total assets.

In fact, the model organically links the indicators reflecting the solvency, profitability and operational capacity of enterprises with a multivariate linear function formula through five variables (five financial ratios) to comprehensively evaluate the possibility of financial risks of enterprises. Arman believes that if the z value is less than 1.8 1, the enterprise has great financial risks; If the z value is in the gray area of 1.8 1-2.99, the financial situation of the enterprise is unclear; If the z value is greater than 3, it shows that the enterprise is in good financial condition and the possibility of financial risk is very small. Arman also put forward that z value equal to 1.8 1 is the critical value to judge enterprise bankruptcy.

2. Use the deterioration of a single financial risk indicator to predict and monitor. Usually, according to the nature of financial ratio indicators and the ability to comprehensively reflect the financial situation of enterprises, the ratio of financial risk early warning of enterprises mainly includes: (1) the ratio of cash to total liabilities. It is equal to net operating cash flow divided by total liabilities. The higher the ratio, the stronger the ability of enterprises to bear debts. (2) current ratio. It is the ratio of current assets to current liabilities. It is generally believed that the current ratio should be above 2, but not lower than 1. The main factors affecting the current ratio are business cycle, the amount of accounts receivable in current assets and the turnover rate of inventory. (3) Net interest rate of assets. Equal to net profit divided by total assets. It compares the net profit of an enterprise in a certain period with the assets of the enterprise, and shows the comprehensive effect of the utilization of the assets of the enterprise. The higher the index, the better the efficiency of asset utilization, indicating that enterprises have achieved good results in increasing income and reducing expenditure. Otherwise, the situation is just the opposite. At the same time, the net interest rate of assets is a comprehensive index. The assets of an enterprise are formed by investors' investment or borrowing, and the net profit is closely related to the assets, asset structure and management level of the enterprise. The main factors affecting the net interest rate of assets are: the price of products, the level of unit cost, the production and sales volume of products, and the amount of capital occupied. (4) Asset-liability ratio. It is the ratio of total liabilities to total assets. It is mainly used to measure the ability of enterprises to use liabilities for business activities and reflect the degree of protection of enterprises to creditors' capital investment. Under normal circumstances, the ratio should be low, but when the business prospects of enterprises are optimistic, the asset-liability ratio can be appropriately increased to obtain the benefits brought by debt management; If the enterprise has a bad prospect, it should reduce the asset-liability ratio, thus reducing financial risks. (5) Asset safety rate. It is the difference between the asset realization rate and the asset-liability ratio, in which the asset realization rate is the ratio of the expected asset realization amount to the asset book value. It is mainly used to measure the residual coefficient after the total assets of an enterprise are realized and the debts are repaid. The greater the coefficient, the safer the assets and the smaller the financial risk; Otherwise, the situation is just the opposite.

Enterprises can use comparison and ratio analysis to examine the changing trend of their own financial ratio indicators over the years, and use the average value of industry indicators and the index value of advanced enterprises for reference to judge their own financial situation, so as to effectively avoid risks, control risks, delay crises or even put an end to them.

3. Prepare the cash flow budget. The preparation of enterprise cash flow budget is a particularly important part of financial management. Since the object of corporate finance is cash and its flow, in the short term, whether an enterprise can survive depends not entirely on whether it is profitable, but on whether it has enough cash for various expenses. Accurate cash flow budget can provide early warning signals for enterprises and enable operators to take measures as soon as possible. In order to accurately prepare the cash flow budget, enterprises should summarize the specific objectives, express the expected future income, cash flow, financial status and investment plan in quantitative form, establish a comprehensive budget for enterprises, predict future cash receipts and payments in weekly, monthly, quarterly, semi-annual and one-year cycles, and establish a rolling cash flow budget.

Of course, a financial risk early warning system should have a good internal control system and audit system, otherwise even the most advanced early warning system can not operate normally. Due to the differences in organizational forms and enterprise scale, enterprises should design financial risk early warning systems that meet their own requirements and characteristics according to actual conditions.

(2) Establish an effective risk management mechanism to enhance the ability to resist risks.

In order to effectively prevent possible financial risks, enterprises must set out from the long-term interests and establish and improve the financial risk prevention mechanism. (1) We can transfer some or all of the financial risks to others in some way (such as participating in social insurance), and establish and improve the enterprise risk transfer mechanism. (2) Through joint venture, diversified operation and diversification of foreign investment among enterprises, the financial risks of enterprises can be dispersed and dissolved in time, and the risk dispersion mechanism of enterprises can be established and improved. (3) When choosing a financial plan, we can comprehensively evaluate the possible financial risks of various plans, and establish and improve the risk avoidance mechanism on the premise of ensuring the realization of financial goals. (4) We can establish and improve the enterprise's risk fund and accumulation and distribution mechanism, timely and fully supplement the enterprise's own funds, enhance the enterprise's economic strength, and improve the enterprise's ability to resist financial risks.

(C) the construction of financial risk system culture, enhance the awareness of risk prevention

The effective management of enterprise's financial risk benefits from full participation and system support. Only by strengthening the financial risk awareness of enterprise employees at the cultural level, breaking the traditional idea of self-independence and self-segmentation management of risks, establishing a comprehensive and holistic risk concept, evaluating and discovering ubiquitous risks in work, spontaneously coordinating and realizing team risk control, and implementing the concept and actions of risk management to everyone. At the same time, the management should devote themselves to investigating and planning the construction of enterprise risk system culture, and strive to improve the risk management level of enterprises through system control and cultural guidance. To make financial managers understand that financial risks exist in all aspects of financial management, and mistakes in any link may bring financial risks to enterprises, so risk prevention must be carried out throughout financial management. Enterprise leaders should strengthen scientific decision-making and collective decision-making, abandon subjective decision-making habits such as empirical decision-making and "slapping the head" decision-making, and reduce financial decision-making risks.

(4) Improve the risk management organization and internal control system.

The complexity and diversity of enterprise financial risk management require enterprises to establish and improve corresponding organizations and implement timely and effective risk management. Only by organizing the financial risks of enterprises, can the financial risk management of enterprises get enough attention and run on a real scale. Enterprises can set up a separate financial risk management office, equipped with corresponding personnel to predict, analyze and monitor financial risks, discover and resolve risks in time, and establish and improve risk control mechanisms. In addition, the weakening of governance structure and internal control system is itself a manifestation of high risk. Therefore, we must first improve the corporate governance structure, improve the risk control ability, realize scientific decision-making and management, and form a complete decision-making mechanism, incentive mechanism and restraint mechanism. Secondly, it is necessary to establish a supervision and restriction mechanism, especially to strengthen authorization examination and approval, accounting supervision, budget management and internal audit. Thirdly, finance and accounting should be separated, and the leaders in charge of the unit should be separated, and management centers should be set up respectively, with their own responsibilities. Finally, we should give full play to the role of internal audit institutions and personnel, and do a good job in internal control review and risk assessment.

(5) Straighten out the internal financial relations of the enterprise and realize the unity of responsibility, right and benefit.

In order to guard against financial risks, enterprises must also straighten out various internal financial relations. All departments should make clear their position, role, responsibility and corresponding power in enterprise financial management, so as to make clear the rights and responsibilities. In addition, in the distribution of benefits, enterprises should give consideration to the interests of all parties in order to mobilize the enthusiasm of all departments to participate in enterprise financial management and truly achieve the unity of responsibility, right and benefit.

[References]

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[3] Wang Xiaohui. The causes of enterprise financial risk and its prevention [J]. Economist, 2006, (3).

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[5] Liu Qiuping. Strengthening enterprise financial risk management [J]. Modernization of building management, 2003, (2).

[6] Yan. Causes and prevention of financial risks of enterprises in China [J]. Journal of Jiangxi University of Finance and Economics, 200 1, (4).

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