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标题 : A ssessm ent of Financial R isk in Firm 's Profitability A nalysis作者 : S olomon, Daniela C ristina; M untean, M ircea 出版物名称 :Economy Transdisciplinarity C ognition卷 :15 期 :2 页 :58-67 页数 : 10 出版年份:2012
AssessmentofFinancialRiskinFirm'sProfitabilityAnalysis
Abstract:Inthecontextofglobalizationwearewitnessinganunprecedenteddiversificationofrisksituationsanduncertaintyinthebusinessworld,thewholeexistenceofanorganizationbeingrelatedtorisk.Thenotionofriskis inextricably l inked to the return. R eturn includes
ensuring
remuneration
of
production
factors
and
invested
capital
butalsoresourcesmanagementintermsofefficiencyandeffectiveness.Afullfinancialandeconomicdiagnosiscannotbe done w i thout reg a rd to the return-risk ratio.
S tock profitability analy s i s should not be dissociated from risk analy s i s tow hich the com pany i s subdued. Riskanaly sis i s useful in decision making concerning the use of economic-financial potential or investm ent decisions,indeveloping business plans, and a lso to inform partners about the enterprise's performa nce level.
Risktakesmanyform:,operationalrisk,financialriskandtotalrisk,riskofbankruptcy(otherriskcategories)eachinfluencingthebusinessactivityonagreaterorlesserextent.Financialriskanalysis,realizedwiththeuseofspecificindicators such as: financial leverag e , financial breakeven and leverag e ra tio ( C LF) accompany ing call to debt,presents a major interest to optim ize the financial s tructure and viability of any com pany operating under a genuine marketeconomy. Keywords:riskanalysisfinancialrisk,financialleverage,breakevenpoint.Introduction
R i sk and return a re tw o interdependent aspects in the activity of a com pany , so the question i s assuming a certainlevel of risk to achieve the profitability that it a l low s. R eturn can only be assessed but on the basis of supported risk. Thisriskaffectseconomicassetreturnsfirst,andsecondlyofcapitalinvested.Thereforeitcanbeaddressedbothintermsofbusiness,astheorganizerofthe
productionprocessdrivenbyintentiontoincreasepropertyownersandadequateremunerationofproductionfactorsandthepositionofoutsidefinancialinvestors,interestedincarryingthebest investm ent, in financial market conditions w i th severalareas of return and different risk levels.
Risk assessment should consider managing change: people change, methods change, the risks change [1, 36]. Consequently,profitability is subjectto the generalconditionofriskwherethe organizationoperates.Risk takesm any forms, each a ffecting the ag ents' econom ic activity on a lesser or g reater ex tent. For econom ic andfinancialanaly sis a t the micro
level
presents
a particular
interest those form s of risk that can be influenced,
in the
senseofreduction,throughtheactionsandmeasurestheeconomicagentscanundergo. 1. . Financial R i sk in Economic Theory andPractice
Financial activity ,in i ts m any seg m ents is influenced by unex pectedly restrictive e lem ents as evolution,oftenunexpected, not depending directly on economic ag ents. Impact of variousfactors ( m a rket, competition, tim efactor,
inflation,exchangerates,interest,commissions,humanfactorsandnotleastthecompanyculture)oftenmakesfinancial become a decision underrisk.
decision
Financial risk characterizes variability in net profit, under the company 'sfinancial structure. There a re nofinancialtemplatefeatures,eachbusinessactivityprintsitsownsignificantvariationsfromcasetocase.Inthecaseofretailers,\bleassetsarelessimportant,butstocksaresignificant,andtheappealtocreditproviderisfrequentlyused,being treasury business\
A n optim a l capital structure w i l l maximize enterprise value by balancing the deg ree of risk and ex pected returnrate. Managementoffinancialriskisanintegralpartofplanningandfinancialcontrol,submittedtostrategicandtacticaldecisionsforacontinuousadaptationtoinsideandoutsidecompanyconditions,constantlychanginganditrequires: - identification of a reas that are prone to risk; - l ikelihood estima tion of financial riskproduction;
- determining the independence relations betw een financial risk and other significant risks ( operational risk , marketrisk - interest rate fluctuations);
- delim i ta tion of risk and keeping i t under observation to stop or diminish ( minim ize) theeffect;
- identify causal factors for financial risk, in order to define potential adverse effects induced on the overall activityof the company;
- determiningtheriskasquantifiablesize,aswellastheeffectsassociatedtoriskoccurrence;
- determining the routes to follow and strateg ies to fit the company 's financial activity in an area of financialcertainty. FinancialriskissuescanbefoundattheheartofRomanianaccountant'snormalizors.Accordingto the OMPF3055 /2 009 , the B oard m ust prepare for each financial y ear a report, called a M anag ers ' report, w hich mustinclude,besides an accurate presentation of development and performance of the entity 's activity and i ts financial position, a lso a description of main risks and uncertainties that i t faces.
Thus,Managersreportmustprovideinformationon:theobjectivesandpoliciesoftheentityconcerningfinancialrisk m anag ement, including i ts policy for risk covering for each major ty pe of forecasted transaction for w hich riskcoverageaccountingisused,andentity'sexposuretomarketrisk,creditrisk,liquidityriskandcashflow.
Requireddisclosuresprovideinformationtohelpusersoffinancialstatements inevaluating the risk financialinstrum ents, recog nized or not in balancesheet.
Themaincategoriesoffinancialrisksaffectingthecompany'sperformanceare[3]: 1 . M arket risk that com prises three ty pes of risk: 0currencyrisk-theriskthatthevalueofafinancialinstrument{FinancialinstrumentisdefinedaccordingOMFP3055/2009,Art.126,as:''...anycontractthatsimultaneouslygeneratesafinancialactiveforanentityandafinancialdebt or equity instrument for another entity \ w i l l fluctuate because of chang es in currency exchang e rates;thelow ering of ex chang e rate can lead to a loss of value of assets denominated in foreig n currency thus influencingbusiness performance;
0 fa i r value interest rate risk - the risk that the value of a financial instrument w i l l fluctuate due to chang es inmarketinterest rates;
0 price risk - the risk that the value of a financial instrum ent w i l l fluctuate as a result of chang ing market prices,even i f these chang es are caused by factors specific to individual instruments or their i ssuer, or factors a ffecting a ll instrumentstradedinthemarket.Theterm\
very
useful
for
2. . C redit risk - the risk that a party of financial instrument w i l l not to com ply w i th the undertaking , causingtheother party a financialloss.
3. . Liquidity risk- ( a lso called funding risk) is risk that an entity meets in difficulties in procuring the necessaryfundstomeetcommitmentsrelatedtofinancialinstruments.Liquidityriskmayresultfromtheinabilitytoquicklyse l l a financial asset a t a value close to i ts fa i r value. 4. .Interestrateriskfromcashflow-is
theriskthatfuturecashflows
will
fluctuatebecauseofchangesinmarketinterestrates.Forexample,ifavariableratedebtinstruments,suchfluctuationsaretochangetheeffectiveinterest rate financial instrument, w i thout a corresponding chang e in its fa i r value.
Financial environment i s characterized by a hig h interest rate volatility , w hich translates in term s of riskandindiscriminateharmsthevalueandprofitabilityofanyenterprise[4,89].Interestrateriskonthebalancesheetis interest rate or w eig hted averag e cost of capital [ 5 , 89 ]. 2 .Financial R isk Assessment
Financialriskassessmentisperformedbyusingspecificindicatorssuchas:financialleverage,financialbreakevenand factor ( C L F) w hose values ex press fluctuations in net profit, under the company 's financialstructurechange. Financial leverag eeffect
Financialriskorcapitalconcernsthecompany'sfinancialstructureanddependsonthemanneroffundingtheactivity: i f it is w holly financed by equity , i t w i l l not involve financial risk . This risk appears only if loan financingsourcesinvolving charg e topay interest and show s a direct influence on financial profitability ( of equity ) [ 6 , 170 ].
Debt, the size and cost drives the variability of results and autom a tica l l y chang es the financial risk. The size ofinfluenceoffinancialstructureonfirmperformancehasproducedfinancialleverageeffect,whichcanbedefinedasthemechanismthroughwhichdebtaffectsreturnonequity,returnontheratioofbenefits(net income)andequity.
Betweeneconomicprofitabilityandfinancialreturnthereisatightcorrelation.Financialreturnisrootedineconomicreturns.Thedifferencebetweenthetworatesisgeneratedbycompanypolicyoptionsforfunding.Usually,onequaleconomicratereturn,financialprofitabilityratesvarydependingonfinancesource-fromownequityorborrowedcapital.
Ineconomictheorythelinkbetweenfinancialprofitabilityrate(Rf)andeconomicrateofreturn(Re)ishighlightedby ingequation: ...
where: d = averag e interest rate; D= total debts; C pr = ow n equity; ...
Ifforcalculationofreturnratesprofittaxistakenintoaccount,therelationshipbecomes[6,170]: w here: i=the taxrate....
W e can see the influence that financial structure, respective \financial resources or capital composition thatfinancial manag er use to increase the needed funding \] , has on the overall profitability of the company . By reporting total debt ( D) to ow n equity ( C PR ) i s determined financial leverag e ( L F) ( or leverag e ratio) reflectingtheproportion of g rants to loans and g rants to i ts ow n resources. The report shouldnot ex ceed the value 2 ,otherw i sethedebtcapacityoftheenterpriseisconsideredsaturated,andborrowingabovethislimitleadtotheriskofinsolvency, both to the borrow er and the lender.
Thefinancialleverageeffect(ELF)resultsfromthedifferencebetweenfinancialandeconomicreturnand\
the
follow leverag
e
reflected
by
chang es in m arket value of an asset, as the present value of an asset i s determ ined by discountingcashflow s using
theimpactofdebtontheentity'sequity,theratiobetweenexternalanddomesticfinancing(domesticresources)\40]thusreflectingtheinfluenceoffinancialstructureontheperformanceofanentity: ...
Depending or not on the consideration of income tax ,net or g ross ra tes of return can be measured, i.e . netorrawfinancial leverag e effect, as follows:
Debtisfavorablewhiletheinterestrateisinferiortotherateofeconomicprofitability,whichhasapositiveinfluenceon financial ra te of the company.
Financial leverag e i s even g reater as the difference betw een economic profitability and interest rate i s hig her, inthisrespectcanbeseenseveralcasespresentedinTable1.
Leverag e effect a l low s evolution stimulation for financial profitability according to the chang e in funding policyoftheenterprisebeinganimportantparameterforstrategicbusinessdecisions[8,164-165].
B ased on the balance sheet and profit and loss account of tw o studied companies' rates of return andfinancialleverag e a re determ ined, as presented in table no. 2.
From the analy sis of the data presented in Table 2 w e may see the follow ing conclusions:
1. . Economic and financial rates of return, in the caseof S .C . A L FA S.A . follows an upw a rd trend recentlyanalyzed aspect reflecting the increased efficiency in the use of equity capital invested, w hile for S .C . B ETA S.A. evolutionis a descendantone.
2. . R eturn on equity ( equity efficiency ) w as hig her than the ra te of economic profitability ( econom icefficiencyof assets, invested capital respectively ) throug hout the period under review follow ing a positivefinancialleverage (ELF>0)andhighereconomicefficiencycostofborrowing(Re>d).
3. . R educing financialleverag e for S .C . A L FA S.A . reducedthe favorable effect of the debt presenceonfinancialefficiencyrate,whichwasduetolowerweightratiooftotaldebtandequitygrowth.
4. . TotaldebtincreasedduringN-landN yearsforS.C. BETA S.A. resultedinincreasedfinancialleverage that potentiates financial return ahead as the economic ra te of return.
Theevolutionoftherelationshipbetweengrosseconomicreturn(Rebr)andgrossfinancialprofitability(Rfbr)forS .C . A L FA S .A .isg raphically presented in Fig ure 1 , and for S .C . B ETA S .A .inFig ure 2.
Analyzingtheevolutionoffinancialleverage(Figure3)onecanseethatriskcapitalisnotplacedataleveltoohigh, w hich m ig ht jeopardize the financial autonom y ofenterprises.
S ome financiers, as M odig l i ani and Fisher a rg ue that i t i s more advantag eous for the company to finance fromloansthan from equity [ 6 , 170 ] as the cost of borrow ed capital ( debt interest) i s a lw a y s deductible company 's tax , w hilethecostofequity(preservedbenefitsanddividends)isnottaxdeductibleforthecompany.Shareholderstendtofallintodebt to g et more tax sa ving ,in this w a y , \enterprise va lue appears to be hig her than the company that i snotunderdebt\Financial breakevenreturn
Establishingthecompany'spositioninrelationtofinancialreturnbreakevenforfinancialriskanalysisisdeterminedtaking corresponding to afinancial breakeven return or \Breakeventhusdetermineddependsonfourfundamentalvariables[10]: - three parameters that influence the stability results of operations: * stability ofturnover;
into
account fix ed costs and fix ed financial costs, meaning interest ex penses. In this s ituation turnoveriscalculated