The financial risks of corporate debt financing are mainly manifested in the following aspects: 1. An increase in debt pressure. If enterprises use debt financing to pay the cost of M&A, there may be three risks: ① high interest expense; (2) the opportunity loss brought to the enterprise by the constraint of debt contract; ③ The pressure of future repayment. The increase of debt cost will lead to the continuous expansion of asset-liability ratio of enterprises, thus greatly increasing the possibility of financial crisis or bankruptcy of enterprises. 2. Control the dilution of equity. If the enterprise pays the M&A cost with stock financing, the possible risk is that the original shareholders' equity will be diluted, and the consequence is that these shareholders (including the enterprise itself) will partially or completely lose control or claim over the residual income. 3. Fluctuation of performance level. The fluctuation of performance level not only refers to the change of pre-tax profit and interest (EBIT) level, but also includes the drastic fluctuation of earnings per share (EPS). Under debt financing, the change of EBIT will lead to greater fluctuation of earnings per share, thus increasing the possibility of financial crisis or bankruptcy of enterprises. Performance fluctuation is an extremely bad signal, which may bring various opportunities (such as reputation loss) to enterprises. 4. Loss of investment opportunities. Corporate debt financing will not only increase the huge debts of enterprises, but also consume a lot of self-owned capital. In this case, even if enterprises are faced with good investment opportunities, they can only flinch. The loss of investment opportunities may reduce the ability of enterprises to obtain income, and then increase the financial risks of enterprises. 5. Cash inventory is in short supply. Enterprises may consume a lot of monetary funds in debt financing. Even if the net assets of an enterprise are very rich, it may cause various problems due to insufficient cash stock, thus increasing the possibility of financial crisis. Second, the identification methods of financial risks of corporate debt financing In order to better prevent financial risks of debt financing, the core premise is to identify various financial risks in advance, and the commonly used methods are as follows: 1. Leverage method. Leverage analysis is a narrow measure of financial risk. By calculating the leverage coefficient, the financial risk level is initially identified, and its indicators include the degree of financial leverage and asset-liability ratio. DFL=EBIT/(EBIT-I)=△EPS/△EBIT where: I is interest expense; DFL refers to the degree of financial leverage, which reflects the large fluctuation of earnings per share (EPS) caused by the change of pre-tax profit and interest (EBIT). The greater the DFL, the higher the financial risk of the enterprise. RLA (asset-liability ratio) is the core index to measure the health of enterprise financial risk. The higher the RLA, the higher the financial risk of the enterprise. When RLA is greater than 50%, it is generally considered that the financial risk level of enterprises is high. When RLA approaches the level of 100%, it indicates that the financial risk of the enterprise is on the verge of bankruptcy. 2.EPS method. EPS analysis method mainly measures the expected change of earnings per share before and after purchasing corporate debt financing, which belongs to the measurement method of generalized financial risk. EPS=[(EBIT-I)( 1-t)]/Q where: EPS is the earnings per share of the enterprise; I is the interest expense; T is the weighted income tax rate; Q is the total number of shares issued. When the EPS after debt financing is greater than that before debt financing, it shows that the decision-making behavior of debt financing is reasonable, and vice versa. 3. Equity dilution method. Stock dilution method mainly compares the changes of original shareholders' equity structure before and after debt financing. This is a broad measure of M&A's financial risk ... RIE = (Q0+Q1)/(Q0+Q1+Q2) RIE is the share dilution rate, which reflects the proportion of the voting shares controlled by the original shareholders of the enterprise to the total voting shares, in which: Q0 is the number of voting shares held by the original shareholders of the enterprise before debt financing; Q 1 is the number of voting shares newly issued by the original shareholders of the enterprise during debt financing; Q2 is the number of newly issued shares with voting rights held by new shareholders in debt financing. When RIE changes dramatically before and after debt financing, it shows that debt financing will bring huge risk of equity dilution to the original investors of enterprises. If the RIE after the issuance of new shares is less than 50%, it means that the financial risk of equity dilution is higher, on the contrary, it means that the financial risk of equity dilution is lower. 4. Cost-benefit method. Cost-benefit analysis refers to comparing the cost and benefit levels of debt financing. It belongs to the financial risk measurement method of generalized debt financing. RCR=C/RRCR is the cost-return ratio of corporate debt financing, where: r is the expected return of debt financing. Including expected benefits such as cost saving, risk diversification, early utilization of production capacity, acquisition of intangible assets and realization of synergy, as well as tax exemption; Expected cost of financing liabilities. It includes direct purchase cost, increased interest, issuance cost, commission and control cost, and various opportunity losses (such as the opportunity cost of retained earnings consumption and the loss of good investment opportunities). When RCR is less than 1, it means that the expected income is greater than the expected cost, so the debt financing behavior is reasonable, and vice versa. 5. Cash stock method. It refers to comparing the expected cash stock level of enterprises before and after debt financing to see whether the cash level is the best and safe. The commonly used method is to calculate the cash current assets ratio and the cash total assets ratio. Cash current assets ratio: RCCA=C/CA Cash total assets ratio: RCA=C/A, where: C is the generalized cash stock of the enterprise, including cash on hand, bank deposits and short-term investments; CA is the current assets of an enterprise; A is the total assets of the enterprise. The lower RCCA and RCA after debt financing, the higher the financial risk of cash shortage faced by enterprises, and vice versa. 6. Model method. Model analysis refers to the method of judging the financial risk of debt financing by constructing statistical and mathematical models. The most common method is to establish a regression analysis model to identify whether the enterprise is facing excessive financial risks. Financial risk level Cr = A0+a 1 x1+a2x2+a3x3+…+anxn+e, where: A0, a1,A2, A3, …, an is a coefficient value; X 1, x2, x3, …, xn are various financial risk factors; E is the residual model analysis method, which can estimate a standard value (CR0) for measuring financial risk in advance according to historical data. When the expected CR after debt financing is greater than CR0, it shows that the financial risk of the enterprise is high, and vice versa. III. Countermeasures for Controlling Financial Risks in Debt Financing After identifying various financial risks in debt financing, enterprises should take various effective countermeasures to reduce or eliminate the possibility of financial crisis and bankruptcy. The countermeasures are as follows: 1. Accept the risk. If debt financing may bring risks to enterprises in the short term, such as rising asset-liability ratio, dilution of corporate equity, loss of investment opportunities, fluctuation of performance level, etc., in the long run, the target enterprises of debt financing may have strategic significance, such as synergy. If the expected income after debt financing is higher than the expected cost, enterprises can make strategic decisions on the target enterprises of debt financing. In addition, enterprises should also establish the following risk management systems: First, establish risk funds. Including bad debt provision and impairment provision; The second is to equip specialized personnel to predict, analyze and report financial risks; The third is the application of risk analysis technology, such as real-time financial risk early warning system. 2. Transfer risks. Risk transfer refers to the strategy that an enterprise transfers part or all of its financial risks to others through joint venture or joint venture with other enterprises or individuals. There are many ways for enterprises to transfer risks, and different risk transfer policies can be adopted according to different risk reasons. 3. Avoid risks. Risk aversion means that if an enterprise has a variety of debt financing schemes to choose from, it can give up the debt financing scheme with high financial risk. For example, when the expected income of corporate debt financing is much lower than the M&A cost, or the asset-liability ratio rises sharply and the earnings per share drops seriously, we should abandon the debt financing scheme and consider other reasonable schemes.