Study On Financial Risk Management Of Telecom Corporation

At the beginning of 21 century, telecommunication corporations faced with financial crisis globally. Financial report distortion appeared once and once again in U.S.A, the European telecom corporations bore too much debt, Global Crossing went bankrupt, and serious financial scandals occurred in Quest and WorldCom. With too much debt and earnings decreasing, any telecom corporations dismissed their staff, and some had to become bankrupt.Telecommunication industry is one of the supporting industries in a country, and it is an industry with high investment and risk. If financial crisis take place in telecom corporations, it would bring much loss to investors and financial institutions, even arouse finance crisis in whole country. Therefore, it is very important to manage the financial risk of telecom corporations. Investors and creditors would benefit a lot from it .And it is also valuable for the government to supervise the telecommunication quality and securities market's risk.As the financial problem appeared a lot in telecommunication corporations, the financial report standards and supervision on internal control in telecom corporations is becoming more and more strict. Under the stringent supervision requirement, how to keep continuous development when taking transformation into 3G era, and how to grasp the opportunity and evade the risk will determine the future of Chinese telecommunication industry. Therefore, it becomes an important and imperative task to analyze the financial risk of telecom corporations and to strengthen the financial risk management in telecom corporations.Using the ZETA forewarning model to evaluate the financial risk of Chinese telecom industry, we found that telecoms in China grow healthily in recent years, the level of financial risk in Chinese telecom industry is not high and the financial state is improving gradually. Till 2006, it is close to the safety state. But the ZETA of Chinese telecom industry are still in dark scale, that is, not too bad but not too good. So there must be some problem in the financial management of telecom corporations. This paper will analyze the financial risk in different aspects, such as financial risk, investment risk, and cash flow management risk.By analyzing, we found that there are many factors that may cause financial risk in Chinese telecommunication corporations. Working capital is not enough, and the telecom corporations rely too much on bank loan. They all face foreign exchange risk, interest rate risk, regulation risk, environmental risk, and technological risk. After analyzing finished, this paper gives some suggestions correspondingly. Chinese telecommunication corporations should optimize its capital structure, strengthen the interior finance consciousness, utilize more finance channels, use financial derivatives to reduce risks, pay more attention to the relation between cash flow and investment expenditure, and strength the internal control.