A Research on the Enterprise Financial Management From the Perspective of Cash Flow Management
I. Problems of Chinese Enterprise Cash Flow Management and Analysis 1.1 Problems in Operating Activities
In daily business activities of enterprises, the main problem of cash flow management of enterprises is to ignore the management of cash flow. For business operators, whether the enterprise can form a benign cash flow can be directly and objectively reflected in the business objectives, but the importance of cash flow is not attracting Chinese business managers' attention; the benign cash flow problem has not been concerned about; the business managers are weak at the management of capital flows and funds operation. Enterprises can only use the investment or borrow new
debt to make up for lack of cash flow and maintain the normal operation of enterprises.
Profit indicators received the attention of enterprises, but they looked down on discount cash flow indicators. Enterprise's payment ability is illustrated based on cash flow indicators. The real payment ability of enterprises cannot be reflected by the profits of enterprises obtained in certain periods of enterprises. Enterprises occur this
situation that according to the income statement, the enterprises’ operating performance is very good-looking, but the serious financial difficulties are placed in
front of enterprises. As an increase in corporate accounts receivable, no cash flows will be increased in operating activities with the increasing of profits. If the accounts receivable cannot be recovered in time, or even cannot be recovered and form bad debts, this not only affects the speed of corporate payments, but also reduces the loss caused by corporate profits as a result of bad debt. At the same time, by reducing the credit policy, the income will be increased. With the false increase in profits, related value-added tax and income tax and other taxes and fees must be paid by enterprises, which greatly increases the burden of enterprises. Therefore, cash outflow of enterprises will also increase.
It is a wrong understanding that the more cash deposited, the better gains will be obtained. Cash is a non-profit asset that cannot or can rarely provide returns.
Excessive cash accumulation will not be able to put the normal turnover into opera- tion but idle instead; finally, the level of making profits will be reduced. Many man- agers do not know that the enterprise are in the normal production and operation
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stage; the cash flows generated from operating activities are most accounting for the cash inflows of enterprises, and business activities hold the lifeblood of enterprises.
1.2 Problems in Investment Activities
The unreasonable investment decision-making is the main problem in the investment activities. Most companies do not have a strategic vision and only consider the immediate interests. Enterprise operators do not often consider whether the enterprise's decision-making can adapt to the development stage of enterprises and their own strength, which results in lower investment returns and less cash back.
Similar to this situation, once the investment project fails, a lot of money will become a sunk cost, which increases the risk of breaking the chain of funds.
Enterprises buy fixed assets without purpose, which will be a serious lack of corporate funds. An enterprise's productivity and technical level are reflected by the number of fixed assets owned by enterprises. Therefore, some managers of enterprises misunderstood this concept and put aside the actual development of enterprises, and do everything possible to purchase advanced equipment. As a result, the normal development of enterprises has been seriously hampered, including: repeated purchase, and poor cooperation among internal units and associate organizations. The plan for periodic equipment renewal is not formulated and the investment in fixed assets is not forecasted and determined; a failure of conducting the feasibility study related to investment projects, and enterprises renew blindly. In addition, the unreasonable purchase of fixed assets, resulting in survival and development of enterprises facing a huge funding gap, is not conducive to the stable and healthy development of enterprises.
Paying attention to the feasibility of investment projects and decision-making is the problem of FDI of enterprises. Most of enterprises have realized that the feasible research and decision and risks and benefits of investment projects and even formulated relevant management methods with respect thereto. However, the management and supervision after approval and initiation of investment projects haven't been focused by the enterprises, which cause increased risks of cash flow.
1.3 Problems in Financial Activities
The greater the net cash flow generated by corporate financing activities is, the greater the pressure on corporate debt service will have. Too much idle funds have not been paid attention by enterprises, which causes more opportunity cost lost; this is adverse to the long-term development of enterprises. As lack of advanced use of capacity, the capital exceeding the ability of using of enterprises are often invested by enterprises blindly. As a result, the non-performing loan will be increased and the investments cannot be recovered as scheduled, both of which are bad for the
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long-term development of enterprises. As low investment benefits and credit level of some enterprises, banks are reluctant to accept the loan and other businesses.
Therefore, enterprises can obtain the liquidity through mortgage, high interest, mutual guarantee and other private means, resulting in unstable corporate liquidity. Once a problem is discovered in the middle part, it will trigger a series of chain reaction, and the risk of financial crisis of the enterprise will increase.
Relatively large-scale debts of enterprises are easy to form financial risks. At present, there are bank loans, issuing shares, issuing bonds, finance leasing and business credit and other corporate financing. Each kind of fund-raising method has their own advantages and disadvantages; if the choice is not appropriate, the additional costs of enterprises will increase and the enterprises' interests will shrink accordingly. Further, the cash flow of enterprises will be negatively impacted and financial risk level will therefore be greatly improved.
With unscientific arrangement of debt maturity structure, for example, short-term borrowing should be used to raise long-term funds, or long-term borrowings should be used to raise short-term funds, both of which have increased the level of funding risks of enterprises. Therefore, enterprises should also take into account the due time of debts and selection of borrowing, so that enterprises in the debt repayment period will not appear any debts due as a result of failure of repayment and cash flow difficulties.
1.4 Financial constraint with weak investment ability, which are difficult to con- trol the tendency of investment
The main sources of corporate funds are from banks and other financial institutions, and occupy an important position in the vast majority of enterprises.
However, influenced by traditional concept and impact of administrative intervention,
as well as the lack of specialized lending services for enterprise financial intermediaries and loan guarantee agencies, enterprises are difficult to attract financial
institutions to invest. Short-term investment is the target of some enterprises; because of the small size of enterprises who are facing the large risk of investment loans, these companies always want to recover investment as soon as possible, but they have no plans to develop long-term business, rarely or hardly. In addition, the financial management of enterprises is backward and enterprises lack scientific financial forecasting, decision-making, budgeting, analysis, so it is difficult to control the direction of investment.
After putting into operation of investments of enterprises, there may be inconsistent input, return and decision therein. The actual amount of investment and return on investment and decision-making are clearly different, under which the expenditures of some companies are not strictly controlled; in the meanwhile, the investment decision-making is not changed. With continual investment, enterprises
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hope to change this situation by virtue of inputting large investment and obtain a higher rate of return. However, enterprises have plunged into a state of vicious capital increase in fact. In addition, companies will have the idea of blindly following the trend in the capital investment activities and fail to conduct pre-market research and prediction and prevention of future risks.
II. Recommendations for Solving Problems of Chinese Enterprise Cash