I. Financing Theories
1. Trade-off Theory
The trade-off theory introduces the factors of bankruptcy costs and agency costs on the value of a firm. A firm can increase its market value by increasing its debt, but as debt increases, so does the probability of corporate risk and financial shortfalls, which imposes additional costs on the firm and reduces its market value. Thus the optimal capital structure of a firm is the result of balancing the benefits of tax savings with the various costs incurred due to the increased probability of financial shortfalls. The costs incurred by a firm as a result of falling into a financial shortfall can be divided into two categories, the bankruptcy costs of bankruptcy due to shortfalls and the costs of increased probability of bankruptcy causing managers representing the interests of stock owners to take sub-optimal or non-optimal decisions to expand shareholder returns at the expense of bondholders, which are known as agency costs and can cause an absolute loss of social benefits.
2. Pecking Order Theory
Meyers and Mykilov proposed a new theory of preferential financing under asymmetric information in their 1984 article "The Puzzle of Capital Structure". The theory suggests that because of issuance costs and information asymmetry, corporate management prefers internal financing to external financing, and if external financing is needed, debt financing is preferred, followed by equity financing.
3. Asymmetric Information Theory
The information asymmetry theory refers to the fact that in the market economic activities, there is a difference in the understanding of the relevant information among various types of people; those who have more adequate information tend to be in a more advantageous position, while those who are poor in information are in a less advantageous position. In the enterprise generally exists the following asymmetry phenomenon: ① senior management and middle and lower management information asymmetry; ② major shareholders and small and medium-sized shareholders information asymmetry; ③ internal operators and external creditors information asymmetry; ④ employees and corporate management information asymmetry.
4. The theory of enterprise financial growth cycle
The changes in information constraints, enterprise scale and capital demand that occur along with the growth cycle of an enterprise are the basic factors affecting the financing structure of an enterprise. In the early stage of enterprise creation, due to the small size of assets, the lack of business records and financial audits, the enterprise information is closed, thus the accessibility of exogenous financing is very low, and the enterprise has to rely mainly on endogenous financing; when the enterprise enters into the growth stage, the demand for funds soars, and at the same time, with the expansion of the enterprise scale, the assets that can be used for collateralization increase, and there is a preliminary record of the business, and the transparency of the information improves, and the enterprise begins to rely more on exogenous financing from financial intermediaries. When the enterprise enters the growth stage, the demand for capital surges, and as the enterprise's scale increases, assets available for collateralization increase, initial business records are available, and information transparency improves, the enterprise begins to rely more on exogenous financing from financial intermediaries. With the opening up of sustainable financing channels in the public market, the proportion of debt financing declines, the proportion of equity financing rises, and some outstanding SMEs grow into large enterprises. The theory of financial growth cycle shows that at different stages of enterprise growth, with the change of information, asset size and other constraints, the financing channels and structure of enterprises also change. The basic law is that the more an enterprise is in the early growth stage, the tighter the constraints on external financing and the narrower the channels; and vice versa. Therefore, for enterprises to develop successfully, they need a diversified financial system to correspond to their financing needs at different growth stages.
II. Financing Channels and Financing Methods
The main financing channels are as follows: ① State financial funds - National Geological Exploration Fund; ② Bank credit funds; ③ Non-bank financial institutions funds; ④ Other enterprises funds; ⑤ Residents' personal funds; and ⑥ Enterprises' self-retained funds. The main ways of enterprise financing are: ① absorbing direct investment - geological work grants; ② issuing shares; ③ bank borrowing; ④ commercial credit; ⑤ issuing bonds; ⑥ financial leasing.
Three, enterprise financing risk point analysis
Financing ability refers to the amount of internal and external financing funds, speed and cost-effective level. First of all, before financing through a full range of feasibility studies and approval at all levels, the marginal rate of return is greater than the marginal cost of judging the project financing plan; second, according to the amount of project funds needed to determine the scale of financing, financial risk and interest rate risk is completely under control; third, the timing of financing is well chosen, the project start-up time and the timing of the financing in line with the step; according to the project to put the capital progress and the principle of the marginal cost of capital to design the financing batch; choose the financial environment at home and abroad, and the cost-effective level of financing. Financing batches; choosing the most favorable domestic and foreign financial environment for financing, choosing the most favorable financing channels and financing methods; fourth, on-balance sheet liabilities and off-balance sheet liabilities are within the reasonable and controllable range of the enterprise, and external mortgages, guarantees, discounting, and borrowing are all in moderation so that the enterprise's capital chain is not broken due to off-balance sheet liabilities; fifth, there is no transfer of revenues to liabilities, and there are no undisclosed secret reserves (underestimated assets, overestimate liabilities); sixth, the internal structure of liabilities, liabilities and current assets, long-term assets, owner's equity internal structure with reasonable; seventh, corporate liabilities and profitability, operating capacity interaction is a positive impact; eighth, long-term liabilities are far more than working capital. Long-term liabilities will continue to be transformed into current liabilities over time and need to be repaid with current assets. If long-term liabilities exceed working capital by a large amount, this conversion will result in current assets being less than current liabilities, thus making both long-term and short-term creditors feel that loans are not guaranteed; ninth, liabilities are greater than owners' equity. This makes the enterprise worse off when the economy deteriorates. One should be wary of enterprises' tinkering with the gearing ratio: (1) recognizing assets in advance; (2) delaying the recognition of liabilities; (3) failing to recognize costs and expenses when they should be recognized; (4) failing to amortize depreciation or amortization when they should be depreciated or amortized; and (5) conducting regular appraisal of the assets to make them increase in value. Tenth, the quality of capital structure mainly reflects whether the comparison between the cost of capital and the rate of return on total assets of the enterprise determines the expansion and retreat of liabilities. That is, when the return on total assets is greater than the borrowing rate try to utilize more liabilities in order to increase the pre-tax margin on sovereign capital; when the return on total assets is less than the borrowing rate, try to minimize liabilities in order to reduce the rate of decline in the pre-tax margin on sovereign capital. Generally 60% of owner's equity and 40% of liabilities is ideal, but it is better not to exceed 70% of the warning line for bank loans in the debt ratio. Eleventh, long-term assets are greater than owners' equity. So that owner's equity not only can not be used for the acquisition of current assets, but also likely to rely on the auction of long-term assets to pay off debt. In the case of long-term assets accounted for 40%, of course, current assets should account for 60%. In accordance with the provisions of the Company Law, the intangible assets of a high-tech company can be up to 70% of the registered capital, because intangible assets are often worthless in the event of liquidation and bankruptcy of the enterprise. Has been seriously depreciated long-term investments, deferred assets, in the enterprise debt settlement almost nothing. Twelfth, the current ratio is less than 2 and the quick ratio is less than 1. This may result in weak short-term solvency and tight liquidity. However, what exactly is the company's short-term solvency depends to a large extent on the internal structure and quality of current assets and current liabilities. Generally speaking, current liabilities account for 30%, of course, long-term liabilities account for 10% is more appropriate. Thirteenth, the internal structure of owners' equity, the proportionate relationship between paid-in capital and various accumulations such as capital reserve and retained earnings. Decision-making should take into account the pressure of corporate dividends and future long-term development potential and capital accumulation constraints. Generally, paid-in capital can only be increased but not reduced, and paid-in capital should be less than the accumulation of various accumulations, with the accumulation of two times the capital is appropriate. This can reduce the pressure to pay dividends and make the enterprise emphasize long-term development. The source of capital reserve is generally not enterprise profit, but a capital reserve, so can not use capital reserve to distribute dividends, make up for losses, can only be used to increase capital, which is the specific embodiment of the principle of capital preservation. Provident fund should be significantly larger than the undistributed profits, that is, 3:1 is appropriate, so that can maintain the future development of the enterprise's vitality. Fourteenth, uncontrolled investment in derivative financial instruments; the enterprise's debtors do not have any collateralized assets or margins, the existence of a large number of off-balance sheet liabilities, overcapacity due to economic or other factors, the existence of a large number of long-term non-performing assets that have not been dealt with, the customers or transactions are heavily dependent on certain groups of people, the important subordinate units can not be sustained and has not been dealt with, and the inability to continue to fulfill the relevant terms of the major loan contract etc. may result in a deterioration of the Company's financial structure.
*ST Baoshuo, *ST Canghua and Xuangong shares are all due to the internal and external provision of huge loan guarantees, the borrower's inability to repay the maturing loans and the implementation of the judicial freeze of equity, which in turn led to the three companies legally bankruptcy, fell into the fate of the takeover and merger.
A land exploration unit of various assets, financing as shown in table 20-1, table 20-2, table 20-3.
Table 20-1 a land exploration unit balance sheet trend analysis (fixed base ratio)
(1) quick assets in 2010-2012 declined in successive years, indicating that short-term solvency is declining; but in 2013 the beginning of the small increase in quick assets, short-term solvency has increased.
(2) Inventory in 2010 to 2012 in successive years to increase, inventory pressure, occupy a lot of funds, may be the main reason for the decline in quick-acting assets. 2013 to 2014 inventory decline, perhaps the rapid increase in money funds.
(3) There is no change in current assets held for disposal for six years, indicating that there is little change in current assets that are not solvent.
(4) Investment in fixed assets has increased for 6 years, taking up more funds.
(5) Intangible assets and deferred assets have no change in the first 3 years, and the last 3 years have increased faster than the first 3 years, but mainly deferred assets have increased more.
(6) Except for a slight decrease in 2010, the appropriation for geological exploration has increased unusually rapidly in other years, and the expenditure for geological work has also increased at the same time, which indicates that the national policy on geological prospecting is tilted and the investment in geological prospecting has been increased. The geological exploration unit also actively seeks geological prospecting projects and strives to fulfill its scheduled tasks.
(7) The total assets also increased simultaneously due to the increase of geological work expenditure.
(8) The current liabilities are suddenly high and low, especially in 2014, the growth is faster, and it is not synchronized with the changes in the increase and decrease of quick assets, which may be more occupied by fixed assets and deferred assets.
(9) Long-term liabilities have not changed for 6 years.
(10) The state fund has been growing steadily, the Geological Exploration Development Fund has increased more, and the public welfare fund has grown the fastest, but it is not an important source of geological exploration expenditures.
(11) Undistributed savings and earnings declined year by year, even in the red, which is the main reason for the insignificant increase in net assets.
(12) The unusually rapid growth of the appropriation for geological work indicates that it is the main source of geological work expenditure and that the main business of this geological exploration unit is quite prominent.
Table 20-2 Long-term liabilities and working capital of a geological exploration unit
The long-term liabilities of this unit did not exceed the working capital from 2010 to 2013, and there will not be the possibility of increasing short-term debt service risk. However, in 2009 and 2014, working capital was negative, and long-term liabilities exceeded working capital by a large margin. When long-term liabilities are converted into current liabilities, the unit may have difficulty in repaying its debts or sell long-term assets to repay its debts.
Table 20-3 capital structure of a geological exploration unit
The unit's gearing ratio is declining year by year, indicating that the long-term solvency; long-term assets have been less than the owner's equity, indicating that the unit has enough owner's equity for the purchase of current assets. But its total return on assets is much lower than the borrowing rate, the more liabilities, the owner's compensation declines more quickly. Therefore, it is not only inappropriate to borrow more debt, but also try to pay off the old debt, or try to improve economic efficiency, for the future borrowing more debt to open up space.
Example 20-4 Handan Steel Bond Interest Rate Risk Case Analysis In early 1996, Handan Steel issued 14% annual interest rate, 3-year credit bonds. Soon, the country 7 times to reduce interest rates, the same period the bond rate of 8% can be issued, Handan Steel Company suffered a huge interest rate risk. May I ask: how to pre-empt interest rate risk in the issuance?
Four, BOT and other investment and financing methods
1. BOT (build-operate-transfer)
That is, build-operate-transfer. This approach is usually taken when the government grants concessions to certain companies for the construction of new projects. A private partner, or an international consortium, is willing to finance the construction of a certain infrastructure on its own, operate the facility for a period of time, and then transfer this to a governmental department or public ***** agency. The concession must be a separate economic unit and capable of generating cash flow on its own; the concession must be capable of operating in isolation from other units. From these two conditions, energy, transportation and other large-scale infrastructure projects are most suitable for BOT, but not all projects can apply BOT, BOT has its own special functions.BOT is a multifunctional investment method integrating financing, construction, operation and transfer.
2. BOOT (build-own-operate-transfer)
That is, build-own-operate-transfer. A private partner, or an international consortium, finances the construction of an infrastructure project, owns and operates the project for a specified period of time after completion, and transfers the project to the government at the end of that period.
3. BOO (build-own-operate)
That is, build-own-operate. This is where a contractor builds and operates an infrastructure under a concession granted by the government, but does not hand over this infrastructure to the public ****** sector.
Example 20-5 Laibin Power Plant B Project
Power plants that have been built using the BOT financing method, with the exception of the earlier, less standardized Shajiao B Power Plant; are mainly the Laibin Power Plant B Project. The project is the first state-approved BOT pilot project, in December 1995, the bidding formally put on sale to the outside world, in November 1996, Electricité de France - Ariston won the bidding and signed the concession agreement, the project's total investment of 2.5 billion U.S. dollars, of which 25% of the shareholders' investment, and the remaining 75% of the project financing in a limited recourse manner, the French Oriental Exchange Bank The remaining 75% was financed on a limited recourse basis, with the French bank HSBC Oriental and the British bank HSBC taking part in the loan arrangement. The project started in May 1997 and was completed and put into commercial operation in 1999, with a concession period of 18 years, of which 3 years were for the construction period and 15 years for the operation period, and the on-grid tariff was RMB 0.41, unchanged for 15 years. The Laibin Power Plant is the most successful BOT power plant project in China. The project took less than two years from approval to commencement of construction, and the feed-in tariff is the lowest for a foreign-owned power project in China, with significant social benefits.
4. BT-(build-transfer)
BT is build-transfer. Shijiazhuang City, the city's water system by the Hebei Construction Investment Company construction, by the Botanical Garden West City water system through the South City water system, Park Park to the East City water system Tianshan Park total investment of 10.8 billion yuan, of which, the South Ring City water system 3.5 billion yuan. After the completion of the transfer to the Government Landscape Architecture Bureau. The government to repay in three years with interest, and pay a 5% profit margin. The source of repayment is the land around the water system is stored, become cooked land, sold to developers, the construction of the water system of supporting facilities, such as hotels, restaurants, entertainment, sports, commercial, folklore, water a street and so on.