First, the long-term solvency of the company based concept
Long-term solvency refers to the affordability of debt and debt protection capabilities.
Enterprises to borrow funds to carry out production and business activities, one can promote the rapid development of production, the other, will increase the company's cost of capital and financial risk.
Cost of capital is the business acquisition and use of funds to pay all costs, including occupancy costs and capital financing costs. Cost of funds used to pay the required capital is occupied by someone else's expense. Debt interest, stock dividends are all occupied by charges. Occupancy costs include time value of money and investment value at risk, time value of money refers to the use of funds in the flow, due to time factor and the formation of the difference value. The longer users, the more interest charges paid. In addition to the cost of funds used, including time value of money, it also includes the value of investment risk (or investment risk premiums). If investors take the risk to invest the necessary requirement to obtain more than the time value of money other than profit, as at risk and the profits to invest in is the value of investment risk. The greater the risk of investment projects, the higher cost of funds used. Financing costs is the agency entrusted financial institutions issuing stocks, bonds, registration fees and agency fees, and bank loans to pay the fee and so on. This is also the business process of raising funds to pay expenses, the cost of capital is one aspect.
Long-term solvency strength is a reflection of the degree of financial security and stability of an important symbol.
Second, the business purpose of the long-term solvency
Analysis of long-term solvency of the enterprise creditors, investors, operators and enterprises associated with all aspects so very important issues of concern. Different viewpoints, the purpose of analysis is also somewhat different.
(A) from a business point of view of investors
Corporate investors, including investors, business owners and potential investors through long-term solvency analysis, can determine the safety of their investments and profitability, as investment security and the solvency of enterprises is closely related. Typically, the stronger the company's solvency, the higher the investor's security. In this case, companies do not need to repay the debt through the sale of the property. In addition, the investment and corporate profitability is closely related to the long-term solvency. In the investment rate of return greater than the cost of funds borrowed funds rate, moderate debt business, not only can reduce the financial risk, you can also use financial leverage to increase profitability. Profitability is the key to increasing the value of capital investors.
(B) from the perspective of corporate creditors
Corporate creditors, including banks providing loans to businesses, other financial institutions and corporate bonds to buy the units and individuals. Creditors will be from their immediate interests to study the solvency of enterprises, only companies with strong solvency, to make their claims in time to recover, and can be expected to obtain interest. As the creditor's income is fixed, they are more concerned about the corporate debt security. Practice, creditors and business safety is closely related to long-term solvency. Stronger corporate insolvency, creditors of the higher degree of safety.
(C) from the perspective of business operators
If the king who refer business managers and other senior management personnel. The purpose of them is a comprehensive financial analysis, and comprehensive. They only care about prices, industry profits, but also concerned about business risk, and most other main difference is that they particularly need to care about profits, risks and causes of the process. It is only through reason and process analysis in order to detect problems in financing activities and deficiencies, and to take effective measures to solve these problems. Therefore, the business purpose of the analysis were the following aspects.
1. Understanding of the financial condition, capital structure optimization
The strength of corporate insolvency is important to reflect the financial position of the sign. Different capital structure, long-term solvency of enterprises are also different. At the same time, different capital structure, its cost of capital are also differences, in turn, could affect the value. Through the analysis of long-term solvency, capital structure can reveal problems in a timely manner to be adjusted to optimize the capital structure and improve corporate value.
2. Reveal the company's financial risk borne by
3. Predict corporate funding prospects
Production and operating capital, usually from a variety of channels to obtain a variety of ways. When the strong corporate solvency, indicating a better financial situation of enterprises, higher credibility, creditors are willing to lend funds to businesses. Otherwise, the company where it is difficult to raise funds from creditors. Therefore, the weak corporate insolvency, corporate finance outlook is not optimistic. If the company is willing to finance a higher price, and the results will bear a higher financial risk business.
4. Various financial activities of the enterprise to provide important reference
Corporate finance activities are concentrated expression in the financing, with resources and the allocation of funds in three areas. When companies access to capital, the amount of how much, depends on the needs of production and business activities, including debt repayment needs. If the business solvency is strong, it may indicate that companies have sufficient cash or other as_set_s can be realized at any time, in this case, companies can take advantage of temporarily idle funds for other investment activities to improve as_set_ utilization effect. Conversely, if the company solvency is not strong, especially in the near future need to pay the debt, the companies must as soon as possible to raise funds to pay the debt to maturity, so that reputation to maintain.
(D) other related parties from the business point of view
Enterprises in practice, with other departments and enterprises have economic ties. Analysis of long-term solvency of enterprises is also important for them. From the government and relevant authorities, through the solvency analysis, to understand the business of security in order to establish appropriate fiscal and monetary policies; for business affiliates, through long-term solvency analysis, whether the business can understand the long-term ability to pay, in order to determine the credit status of enterprises and future operational capacity, and make it long-term stable business relationship decisions.
Third, the factors that affect long-term solvency
Analysis of long-term solvency of an enterprise, mainly in order to determine the company to pay debt principal and interest on the debt capacity. Factors that affect long-term solvency of the company's capital structure and have the profitability of both companies.
(A) the capital structure
Capital structure refers to the composition of capital and its proportional relationship. Capital structure theory in the West, because of the volatility of short-term debt capital, and as a business capital management. Western capital structure refers only to the composition of long-term capital and its proportional relationship. In our broad understanding of the concept of capital structure more appropriate. There are two reasons: First, China's current ratio of current liabilities of enterprises large, if just from the perspective of long-term capital, it is difficult to draw the right conclusions; the second is from a broader perspective to understand the concept of capital structure, has China's official documents The use of country's "capital structure optimization" work is the case.
Corporate funding channels and a variety of ways though, but all the capital boils down to nothing more than corporate equity and debt capital is two parts.
Equity capital and debt capital, the same role. Equity capital is the creation and development of the basic factors that are owned net as_set_s, it does not pay, can be used permanently in the business. While equity capital is the limit of civil liability of shareholders, if the borrower does not return on time, the court can force the debtor to sell property debt, so equity loan has become the foundation. The more equity capital, the more secure the creditor; less equity capital, the greater the likelihood of creditors suffer losses. In the capital market, the ability to borrow money and how much borrowed money, depends largely on the strength of the firm's equity capital.
As its own funds alone to meet the needs of enterprises is difficult, in practice very few companies do not use debt capital for production and operation activities, debt management is a common phenomenon in business. From another perspective, the number of debt capital to complement the business not only from lack of funds, and because the company paid to the creditors of debt capital gains (such as interest on the bonds), the state allows the income tax deduction, it reduces the financing cost of capital. And because debt interest is fixed, regardless of whether the enterprise profits and how much profit, must pay interest at the agreed rate. Thus, if a good business, it is possible to obtain financial leverage. These will enable enterprises to maintain a certain debt ratio. Company's debt capital in the proportion of all the capital the greater the financial leverage to play a more significant role. In general, lower debt financing cost of capital, greater flexibility, the company the flexibility to mobilize an important means of financing the remaining places. However, the debt is to repay principal and interest, regardless of how the performance of the business, liabilities are likely to bring to the enterprise financial risk; visible, capital structure, the impact of long-term solvency of enterprises on the one hand is reflected in the equity capital commitment the basis of long-term debt; the other hand, the existence of debt capital is reflected in corporate financial risk may bring, thereby affecting the solvency of enterprises.
In practice, companies primarily in the following three financing structures.
The first is a conservative financing structure. This refers mainly to the capital structure of equity capital financing, debt financing structure and turned around in the long-term debt financing based. In this financing structure, the company's dependence on low-current liabilities, thus reducing the pressure on short-term debt, lower financial risk; both equity capital and long-term debt financing, high cost, corporate cost of capital higher. See, this is a low financial risk, high capital cost financing structure.
The second is a moderate type of financing structure. This refers to the capital structure, equity capital and debt capital financing the major proportion of the intended use of funds to determine that for long-term as_set_s funded by equity financing and long-term debt finance, and funding for the main current as_set_s financing provided by the current liabilities, the equity capital and debt financing to maintain the proportion of capital financing in a more reasonable level. This structure is a moderate financial risk and capital cost financing structure.
The third type of risk financing structure. This is mainly in the capital structure (or even all) the use of debt financing, current liabilities are also occupied by a large number of long-term as_set_s. Obviously, this is a high financial risk, lower cost of capital financing structure.
Capital structure affect the long-term solvency is an important factor.
(B) the profitability of enterprises
Ability of the business have sufficient cash flow for debt service to use depends largely on the company's profitability. Corporate responsibility for a debt is always two responsibilities: First, the responsibility of the principal debt; the second is the responsibility of payment of interest on the debt. Short-term debt to pay by cash current as_set_s, current as_set_s to obtain because most often short-term debt for funding. The most long-term liabilities of enterprises for long-term as_set_s, in the normal production and business conditions, the formation of long-term as_set_ investment capabilities in fixed as_set_s of enterprises, in general, businesses can not rely on the sale of as_set_s as a source of funding for debt service, and to rely on production and operation income. In addition, the company paid to long-term interest of creditors, but also by the intermediation of funds from the proceeds be paid to create. Visible, the company's long-term solvency and profitability of enterprises is closely related. A long-term loss of business, the normal production and business activities are not carried out, the preservation of its equity capital is certainly difficult, thus maintaining a more normal long-term solvency without protection. In general, corporate profitability is stronger, stronger long-term solvency; the contrary, the weaker long-term solvency. If the business long-term losses, you must sell as_set_s to repay the debts, eventually affecting the interests of investors and creditors. Thus, corporate profitability is an important factor affecting long-term solvency.
Should be especially noted, cash flow and determine the level of assurance of solvency, cash flow, long-term solvency of the impact will be discussed in Chapter 7.
Other factors affecting long-term solvency
(A) long-term as_set_s
Balance sheet in the long-term as_set_s include fixed as_set_s, long-term investments and intangible as_set_s. Long-term as_set_s for the repayment of long-term debt as_set_ protection, long-term valuation of as_set_s and the amortization method the greatest impact on long-term solvency.
1, fixed as_set_s
Market value of as_set_s that best reflect the as_set_s to repay debt. In fact, the report. This is the result of as_set_s. The value of fixed as_set_s report is a measure of the historical cost method, does not reflect the market value of as_set_s, and therefore can not reflect the as_set_s to repay debt. The value of fixed as_set_s subject to the following factors:
(1) the recorded value of fixed as_set_s
(2) depreciation of fixed as_set_s
(3) impairment of fixed as_set_s
2, long-term investment
Long-term investments, including long-term equity investments, long-term debt investments. Report long-term investment value by the following factors:
(1) the recorded value of long-term investment.
(2) impairment of long-term investment.
3, intangible as_set_s
Listed on the balance sheet impact of intangible as_set_s as long-term as_set_ value.
(B) Long-term liabilities
In the balance sheet, a long-term liabilities with long-term project loans, bonds payable, long-term payables, special payments and other long-term liabilities should be. In the analysis of long-term solvency, should pay special attention to the following questions:
1, the accounting policies and accounting methods of choice, to make a difference long-term liabilities. Analysis should pay attention to the impact of accounting methods, particularly in the middle of change in accounting method on the impact of long-term liabilities.
2, convertible bonds should be deducted from the long-term liabilities.
3, there are statutory requirements of the preferred shares should be redeemed as a liability.
(C) the long-term lease
Finance lease is a leasing company to advance funds, purchase of equipment required by the lessee, the lessee pay the rent stipulated in the contract, the purchase of equipment is generally vested in the lessee on expiration of the contract as a lease. Therefore treated as financial leasing companies often purchase fixed as_set_s, and to the fixed as_set_s associated with debt as corporate debt is reflected in the balance sheet.
Unlike a finance lease, operating lease companies are not reflected on the balance sheet, appears only in financial statements and income statement of the rental project. When a business leases than larger, longer term or a regular, the operating leases in effect, constitutes a long-term financing. Therefore, we must consider the type of operating leases on corporate debt structure.
(D) Pension Plan
Pensions are paid to retirees for life after retirement to protect the amount of money. Pension scheme is between the enterprises and workers to pay pensions on employee retirement agreement. Pension plan should include the following: the qualifications of workers participating in the scheme and conditions; method of calculating pension benefits; pension trustee designated unit; regularly allocated to the retirement fund the amount of cash; pension payment methods.
(E) where the
Or have the matter is past transactions or events of a state, the results have to go through the occurrence of uncertain future events occur or not be confirmed. Or have the matter into or as_set_s and liabilities. Or as_set_ is past transactions or events of potential as_set_s, its presence through the occurrence of uncertain future events occur or not be confirmed.
Produce or improve the solvency as_set_s; generate liabilities will reduce the company's solvency. Thus, in analyzing the financial statements, must pay full attention to the project's statements or disclosed in order to understand the balance sheet does not reflect or project, and in the evaluation of corporate long-term solvency, or items to consider potential impact. At the same time, should be concerned about whether the balance sheet date or have issues.
(F) commitment
Commitment is issued by foreign enterprises will have to bear some financial responsibility and obligations. Business needs to operate, often to make certain commitments, such commitments can sometimes increase the number of potential liabilities of the enterprise or undertaking obligations, but not reflected by the balance sheet. Therefore, when the company long-term solvency analysis, the analyst should be based on statements and other relevant information, etc., to determine the possibility of commitments into real liabilities; commitment to responsibility to determine the potential long-term liabilities, and act accordingly.
(G) Financial instruments
Financial instruments is caused by one party to financial as_set_s and financial liabilities caused by the other party to bear or have the owner's equity of the contract. And solvency-related financial instruments mainly bonds and financial derivatives.
Solvency of financial instruments of the enterprise is mainly reflected in two aspects:
1, the financial instruments at fair value and book value of the significant differences, but not in the financial statements or notes in the report revealed.
2, not on the level of risk appropriate financial instruments disclosures.
Statement users in analyzing the long-term solvency, we should note with a balance-sheet risk of financial instruments recorded, and concentration of credit risk analysis of credit projects and financial instruments project, the solvency of the enterprise together to make judgments. |