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Risk and Prevention analysis of the debt financing of enterprises

Author: YangYiHua From: www.yourpaper.net Posted: 2009-05-03 21:09:22 Read:
Paper Keywords: liabilities from operating risk prevention

Abstract:
liability management is commonly used in a mode of operation of a modern enterprise. By analyzing the meaning and advantages of corporate debt management, debt management risks and its risk prevention are discussed.



the , debt management meaning

Debt management companies through bank loans, commercial credit, finance leases and bonds issued borrowed funds to make up for the lack of its own funds in order to get the maximum benefit from the activities of a business. It is also the enterprises to seek access to rapid economic growth, the mode of operation in certain risk conditions.

, liabilities business interests

The connotation of debt management from the perspective of capital management, debt management is not necessarily bad for business. The debt is the capital, for the creditors, it is a kind of lending capital, you can get interest compensation, and also a capital management; debtor, it is a borrowed capital, use it to operate debt management. Debt management can be profitable, you can achieve financial management objectives - to maximize enterprise value, it is an effective way for the development of enterprises. Therefore, in the case of enterprises operating in good condition, a higher return on investment, debt management follows a number of advantages:
Debt management help reduce the overall cost of capital. The one hand, for investors in the capital market, the yield of the debt investment is fixed, due in principal; enterprises using borrowed funds to raise funds, generally assume a bigger risk, but pay a lower cost of capital. Companies using the equity funds to raise capital, the financial risk is small, but the funds to pay the relatively high cost. For businesses, the cost of capital is lower than equity capital financing, debt financing cost of capital. Other -, the debt financing interest payments are tax pay, so that enterprises can get the benefits of reducing the tax the corporate real burden of debt interest lower than the interest paid by the investors.
Debt management with financial leverage. Debt management to give businesses the financial leverage effect. Interest payments is a corporate profit level of the fixed costs, when the the funds profit margin is higher than the cost of debt capital, corporate earnings will increase to a greater degree of financial leverage effect. At the same time, businesses can use its own funds liabilities savings to create more profits.
Debt management to enable businesses to benefit from inflation. There has been widespread national inflation, currency devaluation phenomenon. In an inflationary environment, the currency devaluation, inflation, and the repayment of corporate liabilities still carrying value of standards regardless of inflation, so that the benefits of devaluation.
Debt management help to maintain control of the business. Enterprises to raise funds, to issue bonds or borrowed funds to banks and other financial sector to raise debt capital, shall not be entitled to participate in management decisions. Therefore, while debt financing to increase their sources of funding will not affect the control of the business, but also conducive to the existing shareholders for control of the business.
Debt management can play a role in tax savings. Because the current system requirements, interest on liabilities to be included in finance costs and income tax deduction, it can produce tax savings, so that enterprises pay income tax less, thereby increasing the equity capital gains. Higher interest costs, the greater the tax section, debt management companies with its own funds used in all operating businesses compared to the cost increase, reduced profits, taxable income be reduced, thereby reducing the amount of income tax paid by the and reduce the tax burden on enterprises.

, debt management risk

Course of business enterprises in liabilities, with the above-mentioned advantages, there are many uncertainties due to the operating environment, especially corporate debt pre-conceived trading conditions not conducive to business development, debt management will bring the following risks:
Debt management can reduce the profit margins of equity capital. Although the financial leverage effect can effectively improve the rate of return of equity capital, but the risks and benefits of co-exist, the leverage effect is also likely to bring a sharp decline in the equity capital gains. When enterprises are facing operating difficulties brought about by the economic doldrums or other reasons, due to the fixed amount of the interest burden, the decline of the corporate return on capital, the equity return on capital will decline at a faster rate.
Debt management will increase the financial risk of the enterprise. Enterprises are facing a good market, debt management is good for business leverage effect. But - once the deterioration of market conditions or business appear poor due to the payment of interest must be paid regardless of corporate profit and loss, so this is to increase the financial risk to the enterprise, it makes it more difficult beleaguered business.
3 of insolvency risk. For debt financing, corporate responsibility statutory obligation to repay the principal at maturity. If the corporate liabilities of investment projects can not obtain the expected yield or overall production operations and financial condition worsens or inappropriate use of short-term funds, these factors not only cause substantial decline in equity capital gains, and exposes enterprises The risk of insolvency. As a result, not only of enterprise fund tension affect corporate reputation, serious but also enable businesses to bankruptcy.
Debt management increased refinancing risk. The maturity of the debt and the funds can not recover in time, must be postponed or held the new-old, this will greatly increase the burden on enterprises, to reduce the economic efficiency of enterprises. Financing from the corporate perspective, liabilities and operations, is bound to increase in the debt ratio, the gearing ratio exceeds a certain degree, the lower the level of protection of creditors' claims, which greatly limits the increase the the liabilities financing ability to make future increase in financing costs, financing more difficult, affect the refinancing.

4, liabilities, operating risk prevention

Debt management is one of the means of the modern enterprise mainly engaged in the use of properly will bring income, favorable economic leverage of enterprise development. However, if used inappropriately, make enterprises in trouble, and will even companies pushed to bankruptcy. Therefore, the operator risks to debt management should have a full understanding, measures must be taken to guard against liabilities operational risks:
Risk awareness. In the market economy, enterprises become autonomous, self-financing independent commodity producers and operators, it must be independent of the risk. Enterprises engaged in production activities, internal conditions and external changes in the environment lead to the deviation of actual results with the expected effect is difficult to avoid. Therefore, enterprises must establish risk awareness, to recognize the risk that a correct understanding of risk, scientific risk assessment, and prevention of risk.
Establish an effective risk prevention mechanism. Enterprises must be based on the market, the establishment of sound risk prevention mechanism and financial information network, prediction and prevention of financial risks in a timely manner, develop the risk aversion solutions suitable for the actual situation of enterprises, to diversify risk through appropriate financing and at a reasonable financing structure.
Trade-off between cost-benefit and risk. On specific projects, corporate financing risk decision-making method: First, in the case of the same financing costs, minimum funding risk program; Second, in the case of the same funding risk, minimize the cost of financing the program; Last , funding risk, but the cost of financing the Programme or funding risk but the cost of financing the scheme, according to the manager's attitude towards risk and financing revenue size of the utility, select the funding risk and the cost of capital is relatively small, relatively Financing income Larger programs.
To determine adequate amount of liabilities, to maintain a reasonable gearing ratio. Debt management to enable businesses to obtain financial leverage, at the same time, enterprises should bear the risk of loss of financing liabilities. In order to avoid the risk financing while access to financial leverage, enterprises must make a moderate debt management. The enterprises should take full account of the period of future sales revenue growth and stability of the industry in which competition and other factors, to determine the best balance scale, maintaining the appropriate ratio between equity capital and liabilities. Is generally believed that the quick ratio is generally controlled more appropriate, the current ratio is more appropriate in 2:1 1:1. If it is greater than the index to prove corporate short-term solvency and liquidity is strong, and vice versa weak. These two indicators is too high will result in a waste of money, too low will form the cash flow problems, so the ratio of debt to do coordination. In practical work, how to choose the optimal capital structure is a complex and difficult task, some production and operation, whose products sell fast corporate capital turnover rate, the gearing ratio may be appropriately higher; operations are not ideal, production and sales are sluggish, slow capital turnover rate of enterprise, its gearing ratio should be appropriately low, otherwise the enterprise on the basis of the original commercial risks, increased risk financing. Enterprises must strive to supplement its own liquidity, reduce asset-liability ratio.
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