Capital structure optimization paper 1
Analysis on the Optimization of Enterprise Capital Structure
This paper expounds the meaning of capital structure, the factors influencing capital structure, the problems existing in enterprise capital structure and the measures to solve the problems existing in capital structure. Among them, the influencing factors of capital structure are emphatically expounded, the common problems of enterprise capital structure are analyzed in detail, and the measures to solve these problems are pointed out.
Keywords: optimization of influencing factors of capital structure
The problems of capital structure are small and big. On a small scale, it is the proportion of various funds in the total funds of enterprises, that is, the proportion problem. On a large scale, it involves the amount of debt funds and equity funds, which not only affects the cost of funds, but also involves the size of risks. We can imagine that the asset-liability ratio of enterprises has reached 70% and they continue to borrow foreign debts. If an accident happens, it may affect the life and death of the enterprise. For creditors, loans may go up in smoke. Therefore, we say that capital structure is not a trivial matter, and it will endanger the life of enterprises if it is not handled well. But now some enterprises do not fully understand the capital structure, and the capital structure is extremely unreasonable. This also contributed to the necessity of writing this article. Of course, some existing capital theories also clarify the general principles of capital structure, but the research on capital structure in this paper should be more specific, more comprehensive and more in line with the specific conditions of some enterprises in China at this stage. I hope this article is helpful to some enterprises and can be used for reference.
First, the concept of capital structure
Capital structure is the composition and proportion of all kinds of capital in the total capital of an enterprise. Capital structure can be divided into broad sense and narrow sense, and the broad sense includes the proportion of all debts to shareholders' equity. The narrow sense of capital structure refers to the ratio of long-term liabilities to shareholders' equity capital. What we usually call capital structure mainly refers to the narrow capital structure.
Second, the concept of optimal capital structure
Enterprises want to maintain the best capital structure, which means the lowest weighted average cost of capital; The most valuable capital structure of an enterprise. The combination of these two points is the best capital structure. We know that the capital cost of general debt capital is relatively low and the capital cost of equity capital is relatively high. From this point of view, the more debt capital, the lower the weighted average capital, debt capital will play a leverage role, but the higher the proportion of debt capital, the greater the financial risk, which will have an adverse impact on enterprise value. We can judge the influence of the change of capital structure on the enterprise value by using the method of earnings per share and comparing the cost of capital.
Third, the status quo of enterprise capital structure
At present, the capital structure of some enterprises is unreasonable, not to mention the most expensive capital structure. The debt ratio of some enterprises is scary, reaching 70%-90% or even higher. The high debt ratio and financial risk of such enterprises are creepy. Although the debt ratio of some enterprises is not too high, the debt structure is relatively simple, either borrowing or issuing bonds. There are also some enterprises whose owners' equity accounts for 80%-90% of the total capital, or even higher. This kind of enterprise seems good, basically without financial risks, but it is not without problems. We think that such enterprises lack enthusiasm and are conservative. In short, there are some problems in the capital structure of enterprises at present. These problems, more or less affect the development of enterprises, and even endanger the lives of enterprises.
Fourth, the factors affecting the capital structure.
(A) the external factors affecting the capital structure
1, macroeconomic environment
When the macroeconomic environment is relatively good, enterprises are often in a situation where production and sales are booming. At this time, in order to obtain extra profits, enterprises often borrow a lot to obtain leverage effect. When the macroeconomic environment is not very good, even when the economy is shrinking, enterprises tend to be more cautious and try to reduce borrowing debts. Reduce financial risks.
2. Financial market environment
The capital structure of enterprises is not only influenced by macroeconomics, but also by the financial market environment. When the market funds are tight, it is quite difficult for enterprises to borrow money. At this time, they may make more use of their own funds to make up for the lack of funds, and they can use retained earnings or issue stocks. In addition, when the financial market interest rate is expected to rise, enterprises often borrow a lot of long-term debt, and when the financial market interest rate is expected to fall, enterprises often try to reduce long-term debt.
3. National tax policy
Since the debt interest is deducted before the income tax, it should be said that the higher the income tax rate, the more the debt interest of the enterprise is deducted, and the more benefits the enterprise will get from it. However, cash dividends paid by enterprises have no tax deduction effect. It is paid after tax, so the size of income tax has a great influence on the debt financing or stock financing of enterprises.
4. External evaluation of enterprise credit rating
If the credit rating of the enterprise is relatively high, it is easy for the enterprise to obtain loans, and in addition, it may enjoy preferential interest rates, so that the enterprise may borrow more debts to raise funds; On the other hand, if the credit rating of the enterprise is relatively low, it may be difficult for the enterprise to borrow normally, let alone the preferential interest rate. In this case, it is impossible for enterprises to borrow heavily to raise funds.
5. Industry status and degree of competition
If an enterprise is in fierce industry competition, it will have considerable business risks. Suppose the enterprise borrows a lot at this time, which increases its own financial risk. These two risks are wrong at the same time, which should be quite dangerous for the enterprise. In this case, enterprises should try to reduce debt financing. When the enterprise is in the situation of little competition or even monopoly advantage, in this case, because there is basically no business risk or the business risk is relatively small, the enterprise can raise funds by borrowing a lot to obtain additional income.
(B) the internal factors affecting the capital structure
1, the organizational form of the enterprise
The organizational form of an enterprise has an important influence on its capital structure. Most joint-stock companies are relatively large in scale and diversified in capital structure, including stock financing, bond financing, long-term loan financing, short-term loan financing, and possibly financial leasing and convertible bond financing. Generally speaking, as a joint-stock company, its production and operation are stable, with little risk and diversified capital structure. Enterprises can use debt financing to obtain financial leverage effect and borrow more debts appropriately. However, the capital structure of limited liability companies or other smaller companies is relatively simple. On the one hand, it is impossible to carry out stock financing like listed companies, on the other hand, it will be subject to many restrictions, even for some enterprises, it is impossible. Moreover, the market competitiveness of such companies is often not too strong, not very stable and risky. Such companies should be cautious in borrowing money.
2, the enterprise's asset structure
Enterprise asset structure mainly refers to the composition and proportion of fixed assets and current assets of enterprises. The capital structure of an enterprise is influenced by the asset structure. General current assets are raised by current liabilities, while long-term assets are raised by long-term liabilities and owners' equity. Therefore, how the assets of an enterprise affect and determine the capital structure of the company.
3. If the sales situation of the enterprise is good, the enterprise should make more use of debt to raise funds; If the enterprise's sales situation is unstable, the risk of borrowing a lot of money at this time is relatively large. At this time, the business risk of the enterprise is relatively large, and a large amount of debt financing will greatly increase the financial risk. The overall risk of the enterprise will increase.
4. Attitude towards corporate governance and management.
Corporate governance mainly refers to the right institutions of enterprises, including shareholders' meeting, board of directors and board of supervisors. Company management mainly refers to the company's senior management. The attitude of corporate governance and management includes the attitude towards controlling interests and the attitude towards risks.
(1) attitude towards controlling interest
If the stocks of enterprises are scattered and no one has absolute control, enterprises can make more use of issuing stocks to raise funds; At this time, we are not worried about the marginalization of control. On the contrary, if the equity of the enterprise is relatively concentrated and the major shareholders pay special attention to the control right, it is necessary to consider that the control right will be sidelined. At this time, we should try not to use stocks to raise funds, but adopt other ways to raise funds.
(2) Attitude towards risk
The management and governance of an enterprise are more enterprising and cold about risks, so the possible debt financing ratio of an enterprise is relatively large; If corporate governance and management are relatively cautious and unwilling to take too much risks, then equity financing may be used more.
5. Financial status of the enterprise
The capital structure of an enterprise is also greatly influenced by the financial situation. The enterprise has a good financial position and strong liquidity. If an enterprise has a strong ability to take financial risks, it will make more use of debt to raise funds. In this case, creditors are also willing to lend, or they may give loans at lower interest rates. At this point, the debt scale of the enterprise will increase; If the financial situation of the enterprise is not very good, the risk itself is already great. In this case, banks or other creditors are reluctant to lend to enterprises, and even if they lend to enterprises, they will not enjoy preferential interest rates. At this time, enterprises should try not to lend or lend less.
6, the enterprise's dividend policy
Corporate dividend policy includes fixed dividend payment rate policy, residual dividend policy, fixed or sustained growth dividend policy, low normal dividend plus extra dividend policy, and different dividend policies will affect the capital structure of enterprises. Adopting the policy of residual dividend means that enterprises only use surplus to pay dividends and use retained earnings as much as possible; Adopting the dividend policy of fixed or continuous growth means that the enterprise is operating stably or growing at a high speed, distributing more dividends to shareholders, using less income as retained income and using more liabilities; The policy of fixed dividend payment rate can better reflect the change of income and dividend payment in the same proportion. If the enterprise expands its scale, it needs to use more debt to raise funds. The policy of low dividend plus extra dividend can increase the flexibility of enterprise financing, which should be said to be an ideal dividend policy.
Five, the general problems of enterprise capital structure
(A) excessive use of debt financing
Using debt financing can reduce the cost of capital and achieve leverage. However, enterprises use debt too much to raise funds, which will increase profits quickly when the enterprise benefits well, and will increase financial risks once the enterprise benefits badly. Therefore, debt financing should be used more, and the current situation and market situation of enterprises should be fully investigated. Otherwise, we can't rashly use more debt financing.
(B) excessive use of equity financing
The use of equity financing can strengthen the strength of enterprises, without worrying about the return of funds and interest, but the cost of funds is relatively high, that is, investors demand a higher rate of return. Once the rate of return of an enterprise fails to reach the rate of return required by investors, investors will lose confidence in the enterprise for a long time, and they will throw away their stocks, which may be a vicious circle for enterprises. If a large part of an enterprise's income is used to repay investors, then the funds used for its own development are pitiful, let alone the growth and development of the enterprise. Therefore, excessive use of equity funds is not a good financing method.
(three) in violation of national policies to raise funds
Some enterprises often raise funds regardless of national policies because of their demand for funds. The state has strict regulations on issuing stocks and bonds, but some enterprises turn a deaf ear to them. Issuing stocks or bonds at will will cause financial chaos to the country and greatly affect the financial order of the country.
(D) The capital structure of most SMEs is relatively simple.
Small and medium-sized enterprises can't issue stocks like listed companies, and it is generally difficult to issue bonds due to scale restrictions. So generally speaking, they can only borrow money from banks or accept direct investment from other units. However, for small and medium-sized enterprises, because of their scale and reputation, it is difficult to attract direct investment from large enterprises, and the only financing method is to borrow from banks. Because small and medium-sized enterprises are generally not very famous and banks don't know much about them, it is not particularly easy to get loans from banks.
Measures and methods to solve the problems of capital structure with intransitive verbs
(A) Equity funds and debt financing balance strategy
Corporate financing, whether debt financing or equity financing, can not be used alone, and it needs combined financing, which will reduce the financing risk and take into account the capital cost of enterprises. However, this does not mean that enterprises must achieve the optimal capital structure. In fact, the optimal capital structure should be a relative concept. Different industries have different optimal capital structures, that is, different enterprises in the same industry have different optimal capital structures. The most important enterprises should choose the best capital structure according to their own particularity and local specific conditions at that time.
(2) Further establish and improve the capital market.
It should be said that since the reform and opening up, China's capital market has been gradually improved, but there are still many places to be improved, especially in the legal system. Intensify efforts to crack down on illegal fund-raising, so as to make the financial market develop in an orderly manner, and at the same time further study ways and means to increase the fund-raising of enterprises, so that enterprises in urgent need of funds can raise funds without breaking the law.
(3) Formulate some preferential policies for small and medium-sized enterprises, so that small and medium-sized enterprises will not be hindered by financing difficulties.
It can be said that the strength of a country depends on the development of large companies and enterprises, but the prosperity of a country depends on the development of small and medium-sized enterprises. Without the development of small and medium-sized enterprises, the country will not be rich. Therefore, the state should find ways to solve the development problem of small and medium-sized enterprises. At present, the bottleneck restricting the development of small and medium-sized enterprises is financing difficulty. Therefore, the state should try to formulate the financing problem of small and medium-sized enterprises. Although China has also taken some necessary measures to solve this problem, such as measures for small and medium-sized enterprises, I think the listed small and medium-sized enterprises are just a drop in the ocean, which should be said to be one in a hundred. For example, the amount of bank loans should be relaxed and the loan interest rate should be preferential. But all localities and industries need to make choices, and don't mess up the good things as before. In addition, can we consider relaxing the conditions for issuing bonds so that small and medium-sized enterprises can also enjoy issuing bonds? Another question is whether the state can allocate a certain amount of funds every year to directly invest in small and medium-sized enterprises with development potential, which can greatly promote the development of small and medium-sized enterprises. Then increase the number of small and medium-sized board listings to benefit more small and medium-sized enterprises.
In a word, I think that capital structure, in a narrow sense, seems to be an enterprise problem, and in a broad sense, it is a national problem. I think it is very important to study the capital structure for the development of the country and the nation. Don't think that this is a small problem, and it will be a big problem if it is not handled well.
References:
Yang Hong Yu Jun. Financial management [M]. China light industry press, 20 1 1
[2] Zhong Ling. Research on the optimization of enterprise capital structure [D]. Tongji University, 2006
[3] Lu. A summary of the research on the influencing factors of capital structure [J]. Economic Research Herald, 20 14
[4] Ma. Influencing factors of capital structure [J]. Knowledge economy, 20 10
[5] Zhimin Qin. Research on the Influencing Factors of Capital Structure [J]. Research on Financial Problems, 2003.
Capital structure optimization paper II
On the Optimization of Enterprise Capital Structure
With the improvement of enterprise system and the maturity of capital market, the capital structure of enterprises in China tends to be scientific and reasonable, and the market competitiveness and viability of enterprises have been improved as soon as possible. However, due to various historical and practical reasons, there are still many unreasonable places in the capital structure of Chinese enterprises. Based on the analysis of the problems existing in the capital structure of Chinese enterprises, this paper discusses the optimization of the company's capital structure.
Keywords: capital structure; Debt capital; Equity cost
In recent years, with the development of global economy and the establishment and perfection of China's socialist market economic system, the internal governance structure of Chinese enterprises has been continuously optimized and the enterprise environment has been continuously improved, but there are also some problems, the most serious of which is the capital structure of enterprises. Capital structure not only affects the performance of enterprises, but also plays an important role in the value of enterprises. Therefore, it is of great significance for the survival and development of enterprises to pay attention to the discussion and research of the company's capital structure.
First, the relevant theory of capital structure
1.MM theory
This theory was put forward by two American professors, Modig Lenny and Miller (MM for short). This theory includes MM theory which does not consider enterprise income tax and considers enterprise income tax. Without considering the enterprise income tax, they think that the capital structure will not affect the cost of capital and enterprise value. Under the modified MM theory, that is, the theory of capital structure under tax conditions, they come to the conclusion that debt interest in debt financing has tax-saving benefits. Therefore, if the debt is more, the owner of equity capital can get more benefits and the value of the company will be greater. Therefore, the original MM theory and the modified MM theory are two extreme views on debt distribution in modern capital structure theory.
2. Weighing theory
The main representatives of the trade-off theory are Robichek, Cowes and others. The main point of the trade-off theory is that companies can use the role of tax avoidance to increase value by increasing debt. This theory considers the income brought by debt and the bankruptcy cost brought by debt, and makes a moderate balance between them to determine the optimal capital structure of enterprises. The progress of trade-off theory lies in introducing financial crisis cost and agency cost, and pointing out that enterprises have the best capital structure. But the deficiency of this theory is that it is difficult to accurately calculate the value of agency cost and financial crisis cost.
Second, the capital structure of enterprises problems
Excessive debt
This can be reflected from the 20 10 national independent accounting data of industrial enterprises: coal mining.
The debt ratio of industry is 65.46%, that of food processing industry is 79.5%, that of pharmaceutical manufacturing industry is 76.7%, that of electronic and communication equipment is 79.8%, and that of textile industry is as high as 85. 1%. The main reasons are:
1. The proportion of bank loans is relatively high. Before 1980s, the main funds of China enterprises came from the government's financial allocation. In the early 1980s, after China implemented the policy of "changing from appropriation to loan", the only external financing method for enterprises was bank loan. Until the end of 1980s, China only had stock and corporate bond financing methods. The soft constraint of banks on loan companies is an important reason for the high debt ratio of enterprises.
2. The proportion of retained earnings of enterprises is low. China's securities market has not yet established a truly perfect market mechanism for survival of the fittest, coupled with problems such as adverse selection and moral hazard that may be caused by asymmetric information between investors and owners, so the level of retained earnings of enterprises is not high.
(B) low capital efficiency
1. China Company excessively pursues the development speed of enterprises, only unilaterally expands the debt scale of enterprises, but ignores the benefits of debt management. According to the statistical data of 20 10 published by the National Bureau of Statistics, among the 399,000 state-owned enterprises, nearly 8 1000 (accounting for 20.5%) are loss-making enterprises, and the total loss accounts for 27.5% of the total profit. Inefficient debt management has plunged many enterprises into a similar vicious circle.
2. Business operators lack sufficient sense of responsibility for the use of funds, resulting in inefficient use of funds. For example, in 20 10, the capital utilization efficiency of China's pharmaceutical manufacturing industry was 10.93%, electronic and communication equipment was 8.99%, food processing industry was 8.62%, textile industry was 5.55%, and coal mining and dressing industry was only 5.33%.
(C) the capital structure is inelastic
Generally speaking, once the capital structure of an enterprise is formed, it will have its relative stability, but this stability cannot exclude structural adjustment. When the production and operation environment of an enterprise changes greatly, it is generally required to adjust the proportion of debt operation. The flexibility of enterprise capital structure is mainly manifested in adjusting the ratio of short-term funds to long-term funds and the quantity and speed of asset-liability structure according to the specific environment. However, the capital structure of most enterprises in our country is not flexible due to the problems of poor financing channels, few types of financial instruments, few professional financial managers and their own limitations.
Third, the plan to optimize the capital structure
1. improve the comprehensive management ability of enterprises and strive to get out of the predicament of high debt and low cost.
First of all, enterprises should start from managers, improve financial quality and enhance financial risk awareness, which is conducive to more effective management and research on capital structure and capital operation. Secondly, enterprises should adopt more flexible and diverse management methods, try to reduce the level of capital debt ratio of enterprises, and at the same time increase the intensity of capital accumulation of enterprises.
2. Strengthening the enterprise's own management ability, reforming and perfecting the production and operation mechanism are the internal driving forces to optimize the enterprise's capital structure and improve the efficiency of enterprise's capital use.
First of all, we should formulate a comprehensive business development strategy, do not excessively pursue the development speed of enterprises, and strive to make various business decisions of enterprises. Rationally organize the human, material and financial resources of the enterprise, mobilize the enthusiasm of all parties, and strive to achieve an effective combination of assets and a reasonable allocation of debts. Secondly, before investing, enterprises must conduct feasibility studies on investment projects and cannot invest blindly.
3. Establish a dynamic optimization mechanism of enterprise capital structure.
First of all, for the capital structure management of enterprises, it is necessary to establish a financial early warning system that adapts to environmental changes, so that problems can be forewarned according to relevant indicators in the financial early warning system before they occur and play a preventive role. At the same time, enterprises can make good use of flexible financial instruments such as convertible corporate bonds, callable bonds and callable preferred stocks when choosing financial instruments to be used, which can make enterprises have greater flexibility in capital structure.
In short, the optimization and adjustment of capital structure are not isolated. To fundamentally solve the problems existing in the capital structure, we must optimize the property right structure, study the reform of the property right structure, and establish a developed capital market in order to operate. Only in this way, China's market mechanism system will introduce the capital structure into self-operation and will not passively intervene in the financial management behavior of enterprises.
References:
Emory. Corporate financial management [M]. Beijing: Beijing Renmin University Press, 1999.
[2] Wan Jing. Paradox of enterprise capital structure in China ―― From the perspective of modern enterprise capital structure theory [J]. Jilin: Journal of Jilin Institute of Finance and Taxation, 2003( 1).
[3] Li Shanmin, Herry Liu. A summary of the factors influencing the capital structure of listed companies [J]. Accounting Research, 2003(8).
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