importance
debt structure refers to a variety of corporate debt in the debt ratio of the number of relations, especially the proportion of short-term debt funds because of three reasons.
short-term liabilities affect the value of changes in the liability structure of banks
short-term liabilities affect the value of
. Short-term financing liabilities of enterprises belonging to the greatest risk, but also the lowest cost of capital financing, therefore, the level of short-term debt ratio will inevitably affect the enterprise value.Most of the short-term liabilities are relatively stable
Some people think that short-term fluctuations in the debt completely, without any rules to follow. But in fact, in a normal production and operation of enterprises, the majority of short-term liabilities have often occupied and a certain stability. For example, the lowest industrial enterprises of raw material reserves, inventory reserves and commercial enterprises in the product in the minimum capital reserves, and other occupied, although the use of short-term liabilities ways to raise funds, but short-term funds are generally long-term occupation. A sum of short-term funds recycled, with some regularity, should be included in capital structure research. Repayment pressure
short-term liabilities
As can be seen from the order to repay the debt, the company must first repay short-term debt, followed by long-term debt, and long-term debt prior to its maturity to conversion of short-term liabilities, together with the existing short-term liabilities total liabilities composing business in the short term to repay, the formation of corporate debt pressure.
weigh liabilities
When Sure, sure when the total corporate capital ratio between the debt and equity, the ratio of short-term liabilities and long-term debt has become a trade-off relationship, so it's necessary to weigh the long and short-term liabilities advantages and disadvantages.
In general the cost of capital, the cost of long-term debt is higher than the cost of short-term liabilities. This is because;
(1) Long-term debt interest rate is higher than the interest rate of short-term liabilities.
(2) Long-term liabilities lack of flexibility. After enterprises to obtain long-term liabilities, the debt during the period, even if there is no demand for funds, ahead of the return is not easy, but to continue to pay interest.
Financial Risk Financial risk is often higher than the short-term liabilities Long-term liabilities of financial risk, because:
(1) Short-term debt maturity date near, not prone to repay this gold risks.
(2) short-term liabilities in the interest of cost also has a larger uncertainty. The use of short-term debt to raise funds, must be constantly updated debt, loans due after the next interest on a loan is how much is uncertain, because the interest rate on short-term liabilities of the financial market is very unstable.
ease , relatively speaking, easier to obtain short-term liabilities, rapid, long-term debt is more difficult to obtain. Because creditors in the long-term funding, often bear a greater financial risk, companies are generally required to borrowings detailed credit assessment, and sometimes requires certain assets as collateral.
factors
In total corporate liabilities in certain circumstances, how much flows need to arrange debt, how much long-term debt it? Consider the following factors:
sales
If the company steady growth in sales, is able to provide a stable cash flow to repay maturing debt. On the other hand, if the magnitude of the enterprise sales in contraction or volatility is relatively large, a lot of borrowing short-term debt will bear greater risk. Therefore, steady growth in sales of the business, you can use more short-term liabilities, while sales fluctuations of business, should be less use of short-term liabilities.
asset structure
asset structure will have a major impact on the debt structure. In general, the larger the proportion of long-term assets should be less use of short-term corporate debt, more use of long-term debt or issue equity financing; on the contrary, the proportion of liquid assets larger enterprises, can make greater use of current liabilities to raise funds.
characteristics of different industries operating characteristics of various sectors, there is a big difference in corporate debt structure. Current liabilities using funds raised mainly for inventory and accounts receivable, current assets of both occupancy level depends on the industry in which enterprises.
Scale Management Scale
enterprise-scale business scale have a major impact on corporate debt structure, financial market more developed countries, less current liabilities of large enterprises, the flow of small businesses more debt. Large enterprises because of their large size, good reputation, can be used to issue bonds in the way, in the financial markets at a lower cost of raising long-term funds, therefore, use less current liabilities.
interest rate situation
When interest rates and interest rates of short-term liabilities Long-term liabilities differ less, companies are generally more use of long-term debt, use less current liabilities; on the contrary, when the long-term when the interest rate is much higher than short-term liabilities liabilities interest rates will make the business more to take advantage of current liabilities, in order to reduce the cost of capital.
Optimization
The basic assumptions liability structure analysis in the study of debt structure, to be analyzed successfully, we make the following assumptions;
(1) using short-term liabilities can reduce capital costs and improve remuneration;
(2) use of short-term liabilities will increase business risk;
(3) the total amount of corporate funds a certain proportion of debt to equity has been OK;
(4) operating cash flow can be accurately predicted. The two assumptions above assumptions explained in the case of financial risks under control, we should try to take advantage of short-term liabilities.
The third hypothesis ruled out the possibility of total capital and debt structure, debt and equity structure while the changes will help simplify the analysis process. The fourth hypothesis noted that the predictability of cash flow, because short-term liabilities of enterprises will ultimately be repaid by operating cash flow, cash flow can not predict if we can not determine the structure of liabilities.
circumvent the traditional methods of defects and foreign financial management, are generally used to analyze the flow of short-term solvency and debt levels are reasonable by comparison of certain assets and current liabilities. For example, by comparison of current assets and liabilities calculated current ratio, the quick ratio is calculated by comparing quick assets and liabilities, and in accordance with the ratio of the two short-term solvency and to analyze business liabilities is reasonable levels.
With the above companies to analyze the short-term solvency indicators, there is a certain rationality, but there are two problems with this analysis of ideas:
(1) This is a static analysis, not the business generated cash flow into account.
(2) This is a passive method of analysis, when the company insolvent debt will be forced to sell liquid assets, the sale of such assets will affect the normal business operations.
In order to avoid the shortcomings of traditional methods of analysis, in determining the liability structure of the enterprise, to fully consider the role of cash flows. Short-term liabilities of enterprises ultimately cash flow generated by the business operations to repay in cash flow to determine the flow of corporate debt levels are reasonable based. In determining the corporate debt structure, as long as the companies within a year need to return the debt is less than or equal to the net operating cash flow for the period of enterprises, enterprises even in that year occurred funding difficulties, but also can cash flow the business generated by the return of maturity debt, that there is sufficient liquidity. This net cash flow of business to business basis to ensure short-term liquidity approach is to ensure that short-term solvency of enterprises from the dynamic, compared to current assets, liquid assets such as from static up to ensure a more objective may letter.
reasonably determine the structure since the strong current assets and liabilities liquidity, when determining the actual liability structure, may also be combined with the cash flow of liquid assets used together. Thus, to determine the debt structure will have the following three calculation basis; one is the basis of current assets; Second, net operating cash flow was calculated on the basis; the third is the combination of liquid assets and net operating cash flow up as a basis for calculation. When the combination of the two, can be subdivided into several methods as follows;
(1) simple threshold method. When using this method, the flow of current assets and liabilities can not be less than the net operating cash flow in the lower.
(2) a simple method ceiling. When using this method, current liabilities can not exceed net current assets and operating cash flow in the higher.
(3) the weighted average method. When using this method, current liabilities can not exceed the weighted average current assets and net operating cash flow (weights may be determined depending on the circumstances).
be seen from the above analysis, various methods of determining liability structure has advantages and disadvantages, in the actual work to be combined with their specific circumstances reasonable choice. In addition to quantitative analysis, but also a combination of factors of enterprises industry characteristics, scale of operation, interest rates and other conditions to be reasonably determined.
for reference only.