What Is Financial Risk Analysis?

Corporate financial risk refers to the fact that in the course of various financial activities, due to various unpredictable or controlled factors, the financial situation is uncertain, so that the company may suffer losses. According to the main links of financial activities, it can be divided into liquidity risk, credit risk, financing risk, and investment risk. According to the controllable degree, it can be divided into controllable risk and uncontrollable risk.

Corporate financial risk

Corporate financial risk refers to the fact that in the course of various financial activities, due to various unpredictable or controlled factors, the financial situation is uncertain, so that the company may suffer losses. According to the main links of financial activities, it can be divided into liquidity risk, credit risk, financing risk,

background

Is business management important for market development or risk control?
Generally speaking, high risk corresponds to high return, and low risk corresponds to low return, but for credit business, risk and return are highly unequal.
Banks operate one of the most special assets, the time value of money. How to ensure the safety and effectiveness of assets is the first thing every client manager must face.

In the process of business, companies often adopt credit sales policies to expand business performance. How to control business risks, is it important to control ex-ante or ex-post?
The financial statement of an enterprise is a "business language". It provides users of financial statements with financial information such as the company's financial status, operating results, and cash flow. From the perspective of creditors, how to ensure the security of creditor's rights is in front of credit business personnel An important subject.

Advantage

• From shallow to deep, perspective phenomenon, insight into the nature, revealing risks

• Change perspective, review financial reports from a risk control perspective

• Make good use of "doubt", "criticism" and "vigilance"

• The theory is deeply integrated with reality, and it is highly operable

income

• Master corporate financial analysis methods based on credit risk management

• Learn to combine the analysis of corporate financial analysis with the analysis of the macroeconomic environment and the competitive environment of the industry

• Identify dangerous signals from statements and make forward-looking analysis

• Analyze creditor's ability to source first repayment from financial statements

• Understand the purpose and method of whitewashing financial statements, squeeze out moisture in financial statements

Highlights

Risk control framework for credit business An important way to understand the risk prevention of an enterprise's financial statements-how financial statement analysis can make credit assets safer and more effective

Financial risks exist objectively. It is impossible for an enterprise to eliminate financial risks, and it can only take measures to minimize the harm to the enterprise from financial risks. Fully understanding the causes of financial risks is a prerequisite for effective measures. Changsong consulting financial experts analyze the internal and external of the company, and the main reasons for the formation of financial risks:

(I) Financing

Different sources of funds and different financing methods will have different capital costs and corresponding risks. When raising funds, the company must weigh the risks and costs in order to choose the best financing method. The debt-to-equity ratio reflects the degree of financial leverage. The greater the financial leverage, the higher the return on equity, but the greater the corresponding financial risk. The optimal capital structure is obtained after weighing the benefits and risks to suit the company's characteristics. Capital Structure. In addition, strengthening the management of current liabilities can improve the use efficiency of short-term funds, reduce costs, and ensure daily production and operation needs. As the development of financial markets becomes more complex, the constant changes in the financing decision-making environment and the increasing use of financial derivatives when companies make financing decisions will bring financial risks to enterprises.

(II) Investment link

The company's investable current assets include cash, tradable financial assets, accounts receivable and inventory, etc., and the best choice must be made between liquidity and profitability. Too much investment in current assets can increase the liquidity of the fund, thereby increasing the company's liquidity and solvency, but it will reduce the company's profitability and affect the turnover of funds. Companies can also invest in long-term assets such as fixed assets and long-term securities. Large capital investment projects generally take years or even decades to implement planning and implementation. Due to the large amount of funds and the long time span, the future returns of investment projects are uncertain, with greater risks and uncertainties.

(III) Fund operation

Among the current assets of Chinese enterprises, the proportion of inventory is relatively large, and many of them are manifested as overstocked inventory. Poor inventory liquidity, on the one hand, takes up a lot of funds of the enterprise, and on the other hand, the company must pay a large amount of storage costs for the storage of these inventory, resulting in rising corporate costs and falling profits. In the case of long-term inventory inventory, the enterprise must also bear the losses caused by the falling market prices and the losses caused by improper storage, resulting in financial risks. In accounts receivable management, it is common for enterprises to focus only on sales performance and ignore the control of accounts receivable. In order to increase sales and expand market share, some companies use credit sales to sell products, which has led to a large increase in corporate receivables. At the same time, due to insufficient understanding of the customer's credit rating during the credit sales process and blind credit sales, the accounts receivable went out of control, and a considerable proportion of the accounts receivable could not be recovered for a long time until they became bad debts. Assets have been occupied by debtors for free for a long time, which seriously affects the liquidity and security of corporate assets.

(IV) Profit distribution

Under the premise of relevant laws, the company can independently arrange how much of the profit is used to pay dividends to shareholders and how much is used to retain surplus as capital for the company's further development, which has formed the company's dividend distribution policy. The level of dividend distribution is too low, and the recent benefits of shareholders cannot be met; while the level of dividend distribution is too high, although it meets the shareholders' recent wishes, it is not conducive to the long-term development of the company.