12 Mistakes in Corporate finance

The fundamental purpose of corporate finance is to maximize the interests of shareholders.　　First of all, to ensure that the company has the normal operation and development of the necessary funds, followed by how to deal with its idle funds to enhance the return on capital, to seek stable and ideal investment products. First, the financing than the use of funds more important in reality, the company's financial managers will always "capital tense" hanging on the tip of the tongue, and often for fund-raising, think the enterprise's financial objectives is to raise funds, as long as the financing is to see the benefits. But in fact, many enterprises are not lack of funds, the lack of operating capital and the ability to maintain and increase value. This will inevitably lead to low quality assets, a lot of inferior assets, asset liquidity is poor, the ability to become weak.　　An enterprise should have how much capital, must with its own operating scale, investment direction, blindly pursue to obtain incremental funds and activate the stock of assets, often the bane of its business failure. In addition, any money from the financing channel is not a free "tang", but it is likely to be a "hot potato", because the provider of funds always have to get the expected income. Enterprises do not have good investment projects, or investment income is far lower than the cost of financing, not to raise funds.　　"Enterprises are working for the bank", the image reflects the status of some operators.　　Second, the issue of stocks than to borrow a lot of large shareholders of enterprises to see equity financing as "do not need to pay", this is because the small shareholders of the company's operations and dividends have no say, but the unique phenomenon of this transition period will not last. 1993, Guangxi Yuchai in order to finance has been sold to Singapore Hong Leong sold less than 30% of the equity, the latter calendar year has been more than the annual dividend investment. But in order to maintain their rights in Yuchai not diluted, Hong Leong in the Yuchai United States refinancing, return a A-share, such as tenacious resistance.　　Yuchai struggled for more than 10 years, still unable to get rid of Hong Leong shares this "magic spell". In fact, the mature enterprises in Europe and the United States in the financing of strict compliance with the so-called "pecking order": the first internal financing after external financing, the first debt financing after equity financing.　　Because equity financing must let a part of the company's control, comprehensive comparison is the most expensive way of financing, the more efficient companies should avoid such financing. Third, the debt management can make full use of resources when the company's net assets yield is higher than the borrowing interest rate, the debt management can play the role of financial lever.　　This also takes up as much resources as possible. Another benefit of debt management is called "tax stalls". Tax laws in each country allow companies to deduct interest on debt before tax. Suppose a company with its own 100 million yuan as the liquidity, the year to obtain 20 million yuan pre-tax profit, the need to pay income tax 6.6 million yuan, after tax net profit of 13.4 million yuan.　　If the company borrowed 100 million as a working capital, the year before the income tax before the profit of 40 million yuan, pay an annual interest of 5 million yuan (produce 1.65 million yuan "tax stall son"), need to pay income tax 11.55 million yuan, after-tax net profit of 23.45 million yuan. But debt management also increases the risk of business, once the enterprise through the financing of money generated by the profitsEven if the cost of debt is not affordable, companies will face considerable repayment pressure, or even be forced to go bankrupt. Also look at the example above, if the market change company has no profits this year, if the beginning of debt 100 million yuan will have to pay 5 million yuan profit.　　Therefore, the average company will be the balance of assets under 50% per cent. The dark deficit is better than the Ming some enterprises are unwilling to disclose their real business situation, whitewash the report, manipulate profits, create false prosperity.　　Some companies believe that the loss is not lost, resulting in a decline in asset quality and a weakening in profitability. In 2002, for example, the 2001-year report released by Chujun took over kelon amounted to an astonishing 1.5 billion yuan. Among them, "sluggish inventory provision" was 282 million, 25% of the Finished Goods (1999 and 2000 respectively accounted for 6% and 11% of the finished products), and in the preparation of the 2002 time, the previous year's count was "reimbursed" 198 million yuan. Around the mention of an increase in the reduction, resulting in nearly 500 million yuan poor performance. 2002, the gross profit margin of Kelon was increased by 5.07% compared with 2000, the ratio of operating expenses to turnover decreased by 7.5% in 2000, and the ratio of management cost to turnover decreased by 14.87% (to an incredible 1.57%).　　A series of statements to whitewash, Chujun to create "take over Kelon, a year of loss" myth work.　　Whitewash the report does have a considerable impact on the corporate annual report, but there is no real change in business management, through the measures, prepaid, amortization and other means of "regulation" of profits like thirst. Capital Value added emphasis on capital expansion capital's essential attribute is the pursuit of value added, so many companies put capital expansion in the first place in their operations, especially some new companies or new listed companies, the expansion of the channel is mainly through acquisitions, mergers or large proportion of the transfer of shares, a large number of assets into the listed companies,　　In order to obtain higher valuations. But when companies expand, performance growth should be synchronized with capital growth or should exceed the pace of capital expansion.　　In recent years, a large proportion of listed companies to send shares, the performance of earnings per share appeared in the same proportion but the reverse direction of the landslide, so that its share price from "aristocracy" reduced to "garbage."　　This shows that capital expansion is necessary, but there must be a limit, the enterprise must be in the performance growth guaranteed under the premise of their own situation to determine the pace of expansion.　　Six, as long as the cash can be used to finance some enterprises believe that as long as the hands of cash, whether the reserves of liquidity, or loans to the bank funds, as long as there is no spending, can be used as "idle funds" to money. In fact, before deciding to invest abroad, companies will have to analyze whether the rich money is "free", and the withdrawal will have a negative impact on the company's operations and future development. For example, a restaurant year-end settlement net profit of 500,000 yuan, but next year to spend 200,000 for local decoration and the purchase of kitchenware (belong to additional investment); Consider the rise of agricultural and sideline productsAnd labor costs increase, but also need to increase 100,000 of liquidity (the additional operating funds).　　Therefore, the restaurant owner can rest assured that the money to take home only 200,000 yuan. "Free cash flow" refers to the part of the unallocated profit deducted from the additional investment and the additional operating capital, and it is said that free cash is the idle capital unrelated to the normal operation of the enterprise. The Shi Yuzhu will fund from "brain gold" health care products company left to build giant mansion, use is not free cash, eventually led to the entire company was dragged down.　　And then he will be from "brain Platinum" to earn a part of the huge profits (about 300 million yuan) to buy the people's livelihood and huaxia two banks before the "original stocks", that is, using idle funds to finance, get more than tens of billions of income. Seven, their participation in the management of the project than investment in financial products more assured the first generation of entrepreneurs, many are relying on their own diligence, the enterprise to achieve a certain scale, once they succeed in a certain field, they believe that in other areas will be successful, so would rather their own investment projects, will not be the company's money to fry, buy funds, do VCs,　　Because that is to ask others to do the plate, not at ease. But in fact, the risk of doing so is greater than the risk of investing in money. For example, the company invested in a 10 million yuan this year, not related to the main business projects, the second year, the annual output of 20 million yuan, 1.5 million after-tax net profit, the project renewal period of 10 years. The internal rate of return (IRR) for this project is 8%. You can use the 5-year national debt 5.74% annual interest as the opportunity cost of the project--1000 million into the project can not buy government bonds to eat interests. Opportunity costs should not be overlooked when making project decisions.　　For example, in the above example can not see only 8% annual yield, minus 5.74% of the opportunity cost, the project can bring a maximum of 2.23% of the additional income, that is, 223,000 yuan per year. How easy and safe it is to buy Treasuries. How much time and effort will it take to invest and manage a new 10 million-dollar project, and how much risk?　　Is it worth more than 200,000 dollars? Viii. the company should actively entrust financial management for shareholders 2007 years, the report showed that 1220 listed companies in the first half of the total non-operating income of 85.9 billion yuan, accounting for the total profit of 21.54%. Excluding financial listed companies, investment net income equals 73.1 billion yuan, accounting for three of non-operating income.　　Therefore, some shareholders believe that management should actively entrust the idle funds entrusted to finance, improve performance. However, in a mature market economy countries, dividends or repurchase shares are the first choice for the company's free cash whereabouts.　　This will not only allow shareholders to use their wealth autonomously, but also reduce the risk of improper investment and management responsibilities. In modern companies, where ownership and operation are separated, management is only a shareholder's agent. After the high-speed growth period, Microsoft began to pay dividends or buy back shares, the 2005 dividend is a record to reach 32.4 billion dollars! Shareholders who receive cash can invest according to their preferences, regardless of the company's risk. So the enterprise only believes that the profit is far more than the shareholderForeign investment can only be considered if the investment is high and the risk is within the controllable range.　　Ix. total revenue increase, corporate valuations will rise by 2007, a large number of company's investment income accounted for the company's total income of more than 30%, some have exceeded the main business net profit, so some companies believe that as long as the total revenue increase, the company's valuation will certainly improve, in the development of the main industry, should continue to strengthen investment and financial management. For listed companies, the interests of shareholders are reflected in the stock price level. Therefore, investment decisions should take full account of the positive and negative impact of the company's valuation in the capital market. For example, the United States General Electric (GE) Financial, financial business is well-developed, only the financial leasing companies have 1300 Boeing aircraft, 2 million cars, hundreds of thousands of wagons and more than 10 satellites! But GE has struggled for decades to keep its revenues from its financial operations at less than 40% per cent. Because mature capital markets vary widely in different types of companies, financial firms are far less expensive than High-tech manufacturing.　　A century-old GE is the world's top two in every area it has been involved in in order to be recognized by the capital markets. Mature investors are mostly opposed to the listed companies to invest their hard-earned money to fry, which in itself is a waste of resources. And even if the return on investment is one-off, not sustainable, once commissioned investment has a huge loss, the interests of the vast majority of investors will be damaged.　　such as the cloud in the first quarter of 2007 years to achieve investment income, the two quarter of profits and 2006 period is actually flat, compared to the first quarter of 48%, so, although 2007 first half of the year's net profit growth of 104%, but in fact, the main growth rate is not large, the stock market after the announcement　　RMB appreciation, the dollar income can not be protected since July 2005, the renminbi exchange rate has risen to 10%, and the foreign trade business SMEs face the exchange rate risk is also increasing. In fact, there are six main ways for companies to evade exchange rate risk: first, financial derivative products, including forward settlement, swaps, options trading, and other trade financing, including import and export bills, Juanfetin, export packaging loans, etc., the third is to change the way of trade settlement, including advance payment, deferred payment, forward letter of credit, etc.　　Four is the conversion of non-US dollar currency settlement, including euros, yen and other; Five is the use of foreign exchange financial products, six is the export of high newspaper, import low. In the case of a bank-launched forward-sale business, the bank can agree with the firm on the exchange rate of the renminbi against foreign currencies for some time to come, so that companies can lock in exchange rate costs. And the so-called swap refers to, including two transactions, the first transaction, domestic institutions with foreign exchange in accordance with the agreed exchange rate from the bank to buy renminbi, the second transaction, the Agency in accordance with the agreed exchange rate in renminbi to buy back foreign exchange from the bank.　　Such deals are popular with companies, especially those with import and export business.　　Xi. public fund-raising is their own money, you can always take to finance. At present, some companies entrustFinancial source of funds "name is not right", some companies listed hundreds of millions of yuan, in fact, there is no financial gap in the prospectus said so big, so a part of "idle" money began some "buns", where to make money easy, where to tie. It is not only the market risk, but also violates the law stipulation, and is not conducive to protect investors ' rights and the standard operation of the securities market. Although "entrusted financial management" let the annual report of listed companies "polishing" a lot, but the risk and income balance, but not outweigh the gains. In the 2006 bull, the average income of the listed company entrusted to finance is only about 10%, which is much lower than the same period. 2007, the fund is hot, but not all of the listed companies are smooth sailing investment fund companies, the loss of a few people.　　Zhangze Electric Power Three quarterly bulletin, investment Tianhong Fund's amount shrank 1/3, Wisco shares holds the long letter fund company 16.67% of shares, but at the end of this year three quarter, carrying also appeared more than 2 million losses. The risk of "entrusting money" lies more in the law. From the current practice of "Entrust financial management" of listed companies, most companies do not make major announcements or announcements in time. And the current listed companies and brokerages signed the commission agreement, the vast majority of "entrusted financial" for short-term investment, and there is no legal protection, investment rate of return is not guaranteed. If Citic Sea direct commissioned by the investment company is CITIC Investment, the agreed rate of return is low to 1%, and more than 1% of the proceeds, 90% is attributable to CITIC investment. If with small size, their ability to resist the risk of weak investment consulting companies, is facing huge risks.　　And in itself illegal joint faro its dispute and lawsuit more. 12, distribution to increase the stock than cash dividends more favorable I do not know from which year began, a-share listed companies began to popular Tianquan. Less ten send one, send two, more send eight, send 10. Tianquan News of the announcement without exception is considered super good, Tianquan after the right to fill is taken for granted. In addition, many listed companies in the distribution of dividends to investors, always like the use of stock dividend, on the one hand, based on the requirements of equity expansion, in order to better market reputation, for "makers" to pull stock prices, manipulate market services, on the other hand, to save cash outflow.　　Some companies have been allocating more than 30% of their stock dividend over the years, because of the dilution of earnings per share, the company's return on net assets has been falling, share prices have fallen, affecting the company through a rights issue to raise new capital, investors often do not get real cash returns, loss of confidence in the company's investment. In addition, our so-called ten to 10, in the overseas capital market is called the dismantling of fine, the purpose is to adjust the trading price of the company's shares to facilitate investors, the company's financial situation has no effect. For example, Ctrip in April 2006 when the share price reached 88 U.S. dollars, carried out 1 demolition 2; July 2007, the share price again reached 89.84 U.S. dollars, another 1 dismantling 2; in November 2007, Ctrip rushed to 62.87 dollars, and if there were no two splits the transaction price would be 251.48 Dollars. If in the overseas capital market Tube 1 Dismantle 2 to call 10 to send 10;1 to dismantle 3 to call 10 to send 20, uses these "sends" the stock when the dividend is laughable. Like someone to borrow 10 hundred dollar bill also 20 50 yuan banknotes, but also specialized to borrow 10, also 10, send 10! Listed companies do not have a dime, to Tianquan when the practice of dividends will sooner or later be identified by Chinese investors, the investor will vote with their feet.