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Abstract: Debt financing, as a "double-edged sword" effect, has important management significance for operating enterprises. Therefore, it is particularly important to determine the optimal capital structure of enterprises. Facing the complicated and changeable market economy, it is not feasible for enterprises to mechanically copy the relevant western theories. Enterprises can only find the "fulcrum" of financial leverage by facing the market objectively, starting from themselves and supplemented by mature capital structure theory.

[Keywords:] leveraged capital structure of debt management finance

Enterprises can raise funds in many ways, which are a mixture of two basic capital types: liabilities or equity assets. The optimal or target capital structure of an enterprise is the debt ratio when the market value of its assets is maximized. However, the combination and distribution of different capital sources produce different capital structures and lead to different capital costs, interest conflicts and financial risks, which in turn affect the wealth of corporate shareholders. How to maintain a reasonable proportion of liabilities and shareholders' equity through financing behavior and form the best capital structure is an important content of enterprise financial management.

At present, the capital structure theory in enterprise financial management has established assumptions to varying degrees. However, capital structure decision-making is a very complicated work in practice, and there are many factors that affect capital structure. Therefore, if financial decisions are made solely on the basis of what kind of capital structure theory, once its assumption does not exist, it will make the theory divorced from reality and lead to decision-making mistakes. In order to avoid this kind of mistake, we should comprehensively apply advanced business philosophy and scientific quantitative economic model, which is the key to solve this problem.

First of all, the maximization of shareholders' wealth is an important basis for corporate debt decision.

In physics, leverage refers to increasing strength with leverage. The leverage in enterprise financial activities is called "financial leverage", that is, no matter how much profit an enterprise has, the debt interest is usually fixed. When the income before interest and tax increases, the fixed interest borne by the unit currency surplus will decrease accordingly, resulting in an increase in earnings per share; The "appropriateness" in appropriate lending is the "fulcrum" we find through quantitative analysis, and solving this branch problem is the key to our financial management. According to the principle of financial leverage, enterprises can bring additional benefits to enterprises by adjusting their capital structure, which is the main motivation of corporate debt decision.

To maximize shareholders' wealth through debt management, the following points need to be clarified:

1. The cost of debt financing is much lower than that of equity financing, and it can also play the role of "tax shield". Therefore, in the case of corporate income tax, debt financing can reduce the comprehensive capital cost and increase the company's income.

2. The lowest cost financing method is not necessarily the best financing method. The role and influence of additional expenses such as agency cost, excessive debt will offset the income increase brought by tax reduction, which will inevitably increase the financial risk of enterprises, lead investors and creditors to demand higher rate of return on capital, and thus greatly increase the comprehensive capital cost of enterprises.

3. The optimal capital structure exists objectively. Although the capital cost of debt financing is lower than other financing methods, it cannot be measured by the cost of individual capital. Only when the total capital cost of enterprises is the lowest can the debt level be more reasonable. Therefore, there is an optimal capital structure combination objectively. In financing decision-making, enterprises should constantly optimize the capital structure to make it reasonable until they reach the capital structure with the lowest comprehensive capital cost, so as to maximize the enterprise value.

Second, the advantages and disadvantages of debt financing under the capital structure theory

1. Favorable factors of moderate debt financing

(1) Appropriate debt financing can produce a "tax shield" effect. The biggest advantage of debt financing is that it can enjoy interest tax reduction and exemption. Debt interest is included in expenses, which can offset the pre-tax profit and taxable income of enterprises, and finally achieve the effect of "tax shield". The dividend paid by equity financing is one of the after-tax profit distribution of enterprises, and it does not have the advantage of paying less income tax.

(2) Appropriate debt financing can reduce the supervision cost of shareholders. Debt financing will relatively reduce the supervision cost of shareholders and reduce the cash flow control right of operators' "on-the-job consumption". At the same time, bondholders, as creditors of enterprises, will also supervise some behaviors of enterprises, so as to ensure that the borrowing enterprises can repay the principal and interest when due, and limit the behaviors of business operators that harm the interests of enterprises. In turn, shareholders reduce their capital construction costs.

(3) Appropriate debt financing can avoid stock dilution. The creditor only has the right to recover the principal and interest at maturity, but he has no right to participate in the management of the enterprise no matter how much money is provided. Shareholders can share the control right of the enterprise and enjoy the residual rights and interests of the enterprise according to the number of shares they hold. For the existing shareholders of a joint-stock company, their shares will be diluted every time the company issues new shares. Therefore, debt financing can enable existing shareholders to maintain control over the company and prevent their equity from being diluted.

(4) Appropriate debt financing can alleviate the information asymmetry between shareholders and operators to some extent. Operators and external investors are a pair of contradictory unity, and the information asymmetry between them cannot be completely eliminated. Debt financing can alleviate the information asymmetry between operators and external investors to some extent. In order to protect their own interests, creditors will make some restrictions on the operators when signing debt contracts, and then they will supervise the operators' behavior to prevent moral hazard and adverse selection. In this way, the information asymmetry between operators and external investment can be alleviated to some extent.

2. Adverse factors of excessive debt financing

(1) Excessive debt financing will increase the financial crisis cost of enterprises. Excessive debt will increase the probability of financial crisis and reduce the value of the company. Especially for companies with a large number of intangible assets and illiquid assets, companies with large profit fluctuations are more prone to financial crisis.

(2) Excessive debt financing increases the agency cost of debt. Excessive debt will cause interest disputes between shareholders and creditors, increase the cost of debt contract and supervision, and increase the opportunity cost brought by various restrictions.

(3) Excessive debt financing will increase the opportunity cost of investment. Excessive debt will reduce the company's refinancing ability and may lose investment opportunities. As far as corporate creditors are concerned, in order to safeguard their own interests, they will limit the further liabilities of indebted enterprises to avoid investment risks. For indebted enterprises, excessive debt will also make them face greater risks than other enterprises, and they can no longer be in debt. Therefore, over-indebted enterprises may not be able to raise the funds they need. In this way, he may lose a good investment opportunity.

Debt financing has both advantages and disadvantages for enterprise development. So we can't simply draw the conclusion that debt financing is good or bad. It is a very complicated work to determine the optimal debt ratio of enterprises. Enterprises generally take the average debt ratio of the industry as the starting point of analysis, and then make many adjustments according to the specific operating environment and conditions of the enterprise, so as to finally determine the reasonable capital structure of the enterprise.

Third, how to realize the optimal capital structure of enterprises.

To determine the optimal debt ratio of enterprises, and then determine the optimal capital structure of enterprises, we should have the following concepts:

1. The income ratio of an enterprise should be greater than the debt ratio, which is the most fundamental condition to ensure that an enterprise is qualified to operate in debt. Only when the enterprise is profitable can the debt play the role of tax reduction. At the same time, financial leverage effect is a double-edged sword. Only when the return on capital of an enterprise is higher than the interest rate of debt, and the income generated by debt financing is greater than the interest expense of debt, the actual return on shareholders will be higher than the return on capital of the enterprise. At this time, the debt ratio in the capital structure can be larger.

2. Operational risks and financial risks coexist. Business risk is the risk generated in the process of asset management. The total risk of an enterprise includes operational risk and financial risk. If the operational risk increases, we must reduce the financial risk by reducing the debt ratio. Therefore, whether the debt ratio in the capital structure is optimal or not must also depend on the size of business risks.

3. Ensure the cash flow ability of enterprises to compensate fixed costs. A very important problem in determining capital structure is to analyze the cash flow ability of enterprises to compensate fixed costs. The more corporate debt, the shorter the term and the higher the fixed cost. Such fixed costs include the principal and interest of liabilities, rental expenses and dividends of preferred shares. When determining the debt ratio, enterprises must seriously consider and analyze the future cash flow. When the future net cash flow of an enterprise is sufficient and stable, its solvency is strong, and the debt ratio in the capital structure can be large.

4. Appropriately raise funds, leaving a certain ability to resist risks for enterprises. In the face of uncertain business environment, if an enterprise uses its financial leverage to reach the theoretical optimal debt level, once it encounters unforeseen business risks or financial risks, it may make the whole enterprise face a crisis. In addition, when encountering new investment opportunities and needing refinancing, the choice of enterprise financing will be restricted by the existing capital structure. Therefore, the so-called enterprise capital structure is not the best capital structure in theory, but a moderate and slightly lower debt level, which can be regarded as an unused debt capacity financial reserve, thus making the enterprise financially flexible. Only enterprises with financial and operational flexibility can occupy a favorable position in the fierce market competition in the future.

In short, enterprises can only achieve their ultimate goal on the premise of dealing with the "degree" of debt financing. The decision-makers of enterprises should raise funds according to the internal development needs of enterprises, match and be scientific, give full play to the financial leverage, and maximize the wealth of shareholders, instead of raising funds for the sake of raising funds.

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