Corporate solvency analysis_609.doc

corporate solvency analysisabstract with the global economic integration and the development of a modern credit economy, debt management has become an important means of financing a modern enterprise and strategy. the rational use of leverage, financial leverage to bring benefits to the enterprise, effectively improve the return on equity, but at the same time, the debt will also give enterprises the potential financial risk, or even the risk of bankruptcy. in the investment before the solvency of the business analysis, enterprise predict risk and protect business interests in an effective way. key words short-term liquidity factors affecting long-term solvency capital structure 1, short-term solvency analysis 1. short-term liquidity is mainly manifested in corporate debt maturity the relationship between the disposable liquid assets, the main measure of a current ratio, quick ratio. (1) the current ratio is the ratio of current assets to current liabilities. the current ratio reflects the companys liquid assets available to pay current liabilities of the extent of the greater liquidity ratio, indicating the stronger the short-term solvency. if a company current ratio increased year by year, then the short-term solvency tends to improve and enhance the contrary, then the short-term solvency tends to reduce business risk has increased. (2) the quick ratio is the liquid assets to current liabilities ratio. the higher the ratio, indicating the stronger the solvency of enterprises. generally considered that the ratio of the value of a more reasonable. 2. the existing solvency analysis, current ratio, quick ratio are all built on the liquidation basis rather than on the basis of continuing operations. however, enterprises must survive all the current assets can not be realized to repay current liabilities, it is not possible to realize all its assets to repay corporate debt. (1) cash generated from operating activities in the capacity of enterprises in the business activities of the ability to generate cash depends on the size and growth in corporate sales, costs, and the proportion of expenditure on changes in credit policy, asset management efficiency, the external environments in change and adaptability of enterprises and other factors. analysis in this area can be carried out from the following two aspects: analyze cash flow in recent years to observe the business activities of enterprises in recent years, the cash flow generated is sufficient. analyzes operating activities generated cash flow statement cash flow. first, cash flow from operations to analyze the basic income and cash outflow. second, the analysis of working capital investment is appropriate. finally, we can also be analyzed by calculating the ratio of cash flow and debt repayment of the relationship: cash flow from operating activities / current maturity of debt. by analyzing the cash flow business cash flow period to determine the speed. in fact the number of days of cash flow is equal to the number of days inventory turnover increases the number of days accounts receivable minus accounts payable turnover occupied by the number of days. in general, the fewer the number of days cash flow, its turnover, the faster, companies greater ability to generate cash, the enterprises solvency will be. (2) short-term financing capacity of enterprises refinance old debt by the majority of companies have adopted techniques of a debt, it also includes the ability to repay short-term debt capacity in this area. however, enterprises often can not short-term financing capacity of the project directly from the point of view out of the financial statements, notes to financial statements need to be analyzed: business a good business credit; enterprises can use a bank line of credit; good long-term corporate financing environment; some long-term assets of enterprises an immediate liquidity; sale of the business accounts receivable or discounted notes receivable; corporate liabilities, or credit guarantees provided by others. (3) the quality of current assets liquidity to conduct business activities of enterprise short-term resources to prepare for the vast majority of current assets in the future business activities should be translated into cash flow into the next round. the balance sheet, current assets mainly reflects the quality of the book value and market value compared to the existence of overvalued issues. 2, long-term solvency analysis long-term debt refers to debt for a period exceeding one year, long-term debt due within one year included in the balance sheet short-term liabilities. 1. the long-term solvency analysis is to determine the business to repay debt principal and payment of interest on the debt capacity. analysis of financial indicators are mainly asset-liability ratio, tangible net debt ratio, interest earned multiple, long-term liabilities and working capital ratio. (1) asset-liability ratio is a measure of corporate debt levels and an important indicator of the degree of risk. the lower the index, indicating less access to assets, liabilities, less able to use external funding; on the contrary, the higher the index, it indicates that the more assets to raise debt, the greater the risk. general, maintained at 40% 60% more appropriate. (2) long-term liabilities and working capital ratio is a long-term debt divided by the ratio of working capital. generally speaking, long-term debt should not exceed the working capital, long-term debt will be continuity over time into current liabilities, current assets to repay need to use to protect the interests of creditors. the size of the index, to a certain extent by the impact of corporate financing strategies. (3) the tangible net debt service ratio is total liabilities to tangible net worth ratio, reflecting the company in liquidation by creditors of equity capital employed in the degree of protection. this indicator shows that the greater levels of protection for business-to creditors, the lower the risk the greater the weaker long-term solvency. (4) the interest earned is the enterprise multiple of ebit and interest expense ratio used to measure the ability of companies to pay interest on borrowings. in the long term is greater than the index of at least 1, under similar circumstances in the operational risk, the greater the interest earned multiple shows that the stronger the ability to pay interest. 2. interest earned multiple indicator does not reflect the ability to repay debt principal. further calculations should therefore be the following two indicators to fully measure the debt service. (1) the ratio of debt principal payments. debt principal repayment ratio = annual after-tax profit / debt principal / debt-life the index must be greater than 1, the higher the stronger the enterprises solvency. (2) cash flow coverage ratio. cash flow coverage ratio = beginning cash balance of this years cash net income before interest payments and tax / the amount of interest payments due this year, the debt / (1 - tax rate) this indicator is used to evaluate whether the enterprise in its business activities generated cash flows sufficient to repay the debt. the index is greater than 1, indicating that companies have enough cash to pay interest and repay principal. 3. by analyzing the cash flow statement to analyze the rationality of increasing long-term liabilities in the cash flow analysis, when the business activities in the cash flow is negative, which rely mainly on cash flow shortage of long-term debt increased to compensate, you need a specific analysis. 4. in the analysis and evaluation of business, when the long-term solvency, but also carefully analyze the long-term leases, warranties, or the project factors. reposted elsewhere in the paper for free download http:/ third, capital structure enterprises to buy long-term assets or long-term investments with a view to long-term development and long-term financing, a detailed analysis should be a reasonable long-term debt increased, while the capital structure should be analyzed whether it has changed. the factors that affect capital structure are: (1) enterprise in which the industry. as the industry is different in the portfolio, there are significant differences, leading enterprises in the financing of short-term capital and long-term capital, when the ratio of debt capital and equity capital ratio of the different. (2) the enterprises cash flow situation. enterprises can use the funds, not book profits, but net cash flow. net cash inflow than larger companies, the debt-capital financing can be used; when an enterprise is in the rapid expansion of the scale, or very risky when the owners equity capital financing can be used. (3) corporate financing choices. in many countries, early business financing channels for a single, bank lending is the main