At the present stage in China, enterprises are generally faced with the problem of capital shortage, and financing has become a very important financing channel for enterprises. Debt financing is one of the main financing methods of modern enterprises, and it is also widely used by enterprises. If there is debt, there will be financing risk. Therefore, the risk brought by debt is also a realistic problem that every enterprise can't avoid.
1. Sources of financing risks
Financing risk refers to the risk related to enterprise financing, which generally refers to the uncertainty of financial results caused by the change of capital supply and demand and macroeconomic environment. It has two meanings. First, it refers to the risk that debt financing will lead to a decline in the income of business owners; The second refers to the risk that debt financing may lead to financial difficulties or even bankruptcy of enterprises.
The financing risks of enterprises mainly come from the following aspects:
1. Uncertainty of profit rate of enterprise investment and interest rate of borrowed funds. When the profit rate of an enterprise's investment is higher than the interest rate of borrowed funds, due to the role of financial leverage, enterprises can use part of borrowed funds to improve the profit rate of their own funds; When the profit rate of enterprise investment is lower than the interest rate of borrowed funds, the use of borrowed funds will reduce the profit rate of its own funds and even cause losses. In severe cases, due to the high asset-liability ratio or the existence of a large number of non-performing assets, it will lead to insolvency and bankruptcy.
2. The success or failure of business activities. For enterprises operating in debt, the funds for servicing the principal and interest ultimately come from the income of the enterprise. If the enterprise is poorly managed and loses money for a long time, it will not be able to pay the principal and interest of the debt on time, which will bring pressure to the enterprise, and may also damage the reputation of the enterprise and fail to raise funds effectively, leading to financial risks for the enterprise.
3. Debt structure. Whether the ratio of borrowed funds to self-owned funds is appropriate is also closely related to the financial interests and risks of enterprises. Under the financial leverage, when the investment profit rate is higher than the interest rate, the enterprise will expand the debt scale and appropriately increase the ratio of borrowed funds to its own funds, thus improving the return on equity capital of the enterprise. On the other hand, when the investment profit rate is lower than the interest rate, the more debts the enterprise has, the higher the ratio of borrowed funds to its own funds, and the lower the return on equity capital of the enterprise. In severe cases, enterprises will suffer losses and even go bankrupt. At the same time, in the case of fixed debt scale, whether the arrangement of debt maturity is reasonable will also bring financing risks to enterprises. If the proportion of long-term and short-term debts is unreasonable, the repayment period is too concentrated, the pressure of paying off debts on the maturity date of debts is too great, and the capital turnover is ineffective, which will affect the normal production and business activities of enterprises.
4. Changes in interest rates. Enterprises may face risks brought by interest rate changes when raising funds. The interest rate directly determines the capital cost of enterprises. When the country is implementing the "Double Loose" policy, that is, the expansionary fiscal policy and the loose monetary policy, the money supply increases and the loan interest rate decreases, so that enterprises raise funds at this time, the capital cost is lower, and the operating costs borne by enterprises are reduced, thus reducing the financing risks of enterprises; On the contrary, when the "double tight" policy is implemented, that is, when the fiscal policy and monetary policy are tightened, the money supply shrinks and the loan interest rate rises. At this time, enterprises raise funds, the cost of capital increases, and the operating costs borne by enterprises increase, so enterprises will bear greater financing risks.
5. Exchange rate changes. If an enterprise borrows foreign currency, it may also face risks brought by exchange rate changes. When the borrowed foreign currency appreciates during the borrowing period, the actual value of the enterprise's repayment of principal and interest at maturity will be higher than the value at the time of borrowing. When the exchange rate changes reversely, that is, when the borrowed foreign currency softens (depreciates), the borrowing enterprise can obtain "holding income", that is, due to the devaluation of the borrowed foreign currency, it still repays the principal according to the borrowed amount at maturity, and pays interest at the original interest rate, thus reducing the value of actually repaying the principal and interest.
6. Decision-making mistakes. Investment projects need to invest a lot of money. If the decision-making fails or the project cannot be completed and formed quickly for various reasons, and the funds cannot be recovered as soon as possible to repay the principal and interest, the enterprise will suffer a huge financial crisis.
Analysis of advantages and disadvantages of debt management
Debt financing is a double-edged sword, which can not only bring financial leverage benefits, but also cause financing risks. Engaged in production and business activities with the funds raised by liabilities, that is, debt management. Under certain capital structure conditions, the debt interest paid by enterprises from earnings before interest and tax is relatively fixed. When the income before interest and tax increases, the debt interest borne by each yuan of income before interest and tax will decrease accordingly, and the profit that can be distributed to the enterprise owners will increase after deducting income tax, thus bringing additional income to the enterprise owners, that is, financial leverage income. Similarly, due to the role of debt management, when the pre-tax profit drops, the after-tax profit drops faster, which leads to a sharp drop in the income of business owners and may even lead to bankruptcy. For enterprises, it is necessary to measure the benefits and risk losses brought by adopting debt management. Therefore, it is of great significance to study the positive and negative effects of debt management on enterprises.
(A) the positive role of debt management in enterprises
1. Debt management is conducive to improving the business scale of enterprises and enhancing their market competitiveness. Market economy is a competitive economy, and the success or failure of competition depends not only on the way of competition, but also on the competitive strength of enterprises, that is, the capital scale of enterprises. Enterprises can raise enough funds to expand their business scale and participate in market competition in a relatively short period of time by borrowing.
2. Debt management can enable enterprises to obtain financial leverage benefits and improve the income of enterprise shareholders. When the investment profit rate is greater than the debt interest rate, because the debt interest paid by the enterprise is relatively fixed, when the income before interest and tax increases, the debt interest borne by the income before interest and tax per yuan will decrease accordingly, thus bringing additional income to the enterprise owner.
3. Liabilities can enable enterprises to obtain tax-saving benefits. Enterprise liabilities should pay interest on schedule. According to the relevant provisions of modern enterprise accounting system, interest on liabilities should be paid before tax. In the case of the same operating profit, compared with non-debt enterprises, debt enterprises can obtain potential benefits because of the reduction of income tax paid.
4. Debt management can reduce the loss of currency depreciation. In the case of inflation, it is more beneficial to use debt to expand reproduction than to accumulate capital by itself, because inflation will lead to currency depreciation, and the interest rate difference between loan repayment makes the actual value of debtor's repayment less than that without inflation. In fact, the debtor transferred the risk of currency depreciation to the creditor, thus reducing the losses caused by inflation.
5. It can reduce the comprehensive capital cost. Enterprises should repay the principal and interest on schedule regardless of profit and loss, which is less risky for creditors. At the same time, enterprises will no longer bear other economic responsibilities other than debt service. Unlike issuing stocks, they have to pay a large amount of after-tax dividends, and the interest paid by enterprises is included in the cost and does not need to bear income tax. Therefore, in comparison, the capital cost of liabilities is generally lower than the cost of equity capital, which is conducive to reducing the comprehensive capital cost.