The Research On The Industry Financial Risk Based On Balance Sheet Approch

China's telecommunication equipment manufacture industry is one of the important pillar industries for China and it has strong competitiveness globally. Under globalization, it has inevitably entered into the mature stage after almost ten years' fast-rate development, but it still keeps its original development model of high leverage and high-speed size expansion. There are huge financial risks hidden behind it. Traditional industrial financial risk evaluation stresses on flow indexes (growth, profitability and liquidity) and part of the stock indexes (asset size and asset-liability ratio); the risk indicators may not be comprehensive enough, has no foresight,and can not provide early warning for upcoming risks. Therefore, quantified financial risk evaluation on this industry and setting up a foresight risk warning system become urgent and important, this is the reason why we write this article.This article conducts a quantification study on the financial risks from a macro-financial angle by using macro-financial engineering theories and methods. This article constitutes a new systematic framework for the study on the financial risks in China's telecommunication equipment manufacture industry, and adopts methods of combining flow analysis and stock analysis, static analysis and dynamic analysis, qualitative analysis and quantitative analysis. Firstly, it starts from the flow indexes analysis to reveal its reflection on variation tendency and financial risks; secondly, it studies the structural financial risks hidden in the stock section through making static balance sheet; thirdly, it introduces in the market information and build a dynamic contingent claim balance sheet to study the market value of assets and liabilities and the structural mismatching risks hidden within. In the end, it brings out the overall industrial contingent risk indicators (fluctuation ratio, default probability and distance to default) by using the contingent claim method based on the contingent claim balance sheet to study the financial risks of this industry from an overall angle. Because of its special requirements on data, the contingent claim method is usually applied in studying listed companies. There are considerable numbers of unlisted companies in this industry, and even the leading company of Huawei Technologies has not been listed. Therefore, if we ignore these unlisted companies, the results may not be as precise as required. To solve this problem, this article also studies that how we can bring the leading company of Huawei into the overall study of financial risks. By choosing the ZTE as the listed company of reference for Huawei and analyzing its sales revenue, net assets and net profits, it obtains the approximate market values of Huawei. Based on these approximate values, it studies the financial risks of the industry including Huawei by adopting the balance sheet and contingent claim balance sheet methods. This article also studies the possibility of using financial tools to build a financial risk management system in China's telecommunication equipment manufacture industry, concerning aspects of financial risk management mechanism, risk management tools, risk management policies and risk management rules, which should form a set of thorough system of closed cycle.After studying the financial risks in China's telecommunication equipment manufacture industry based on this framework and method, this article draws the conclusion that the financial risks in this industry keep increasing and accumulating. This conclusion is consistent with the investigation results from insiders. By using the system engineering method to study the cause of the increasing financial risks, this article discovers that it is caused by the contradiction between the high-speed expansion and the entering into to the mature stage, along with a deeply rooted reason of moral risk generated by the profit and risk asymmetry of the high leverage ratio. After putting the Huawei into consideration, the result shows, although the market value of asset increases and the contingent liability ratio lowers the market concentration increases with higher fluctuation ratio and narrowed the distance to default, In fact, the overall industrial risks are increasing. It is also a result of Huawei's radical expansion strategy. Therefore, we can study the financial risks of unlisted companies through the combining net profit and net asset methods. The global financial crisis thrusts a huge impact on China's communication equipment manufacture industry, and it is an inevitable and rare external impact. This article conducts an in-depth study and empirical verification on the effects of this impact. The result shows that the industrial financial risk indicators constituted by this article effectively reflects the actual financial risks within this industry with considerable foresight (9 months earlier before risks occur), the effectivity of the method drawed by this article is verified in some certern. This will also lay a theoretical foundation for creating a risk warning system in this industry.