Research On Financial Risk Early Warning Based On Entropy Method And Effect Coefficient Method

With the changes of the world economic environment, enterprises have facing increasingly competition and the enterprise’s financial risk pre-warning becoming more important so that it should be a common method for enterprise’s management. Today the necessity of research for enterprise’s financial risk pre-warning has gradually becoming a consensus in both theory and practice. In recent years, the steel industry is facing enormous challenges that influenced by the domestic economic growth and economic structure adjustment. However steel industry is the basic industry of national economy, it will suffer great loss to national economy if it falling into financial risk. Therefore, this paper do financial risk pre-warning reaserch based on the steel industry listed company have certain practical significance.This paper takes a listed company in steel industry as research sample. The research ideas are as followed: Firstly, discussed and summarized the literature of the research on financial risk pre-warning. Then the reasons for using the method of entropy value combined with efficiency coefficient to evaluate the A company’s financial risk pre-warning are explained after analyzing the current research status. Secondly, the basic theory about entropy and efficiency has been elaborated respectively. At the same time, the paper will expound the superiority and feasibility of the method. Thirdly, the paper will construct the financial risk pre-warning system from four aspects which are profit-making ability, debt paying ability, working ability and growth ability after analyzing the risk of internal and external environment of A company and discussing the importance about establishing a financial risk prewarning system. Finally, combined the result of the financial risk pre-warning systemof A company, the paper presents the way to against A company’s financial risk.Results show that the entropy theory combined with efficiency coefficient in financial risk pre-warning is effect by using the system analyze the financial data of A company for 5 years.This paper combines the entropy and efficiency coefficient method to overcome the limitations of subjective factors in financial risk pre-warning. In addition, the system has the instruction function for financial risk pre-warning of A company that provided by this paper to predict and against financial risk, and also gives a scientific basis for financial risk management of A company.