On The Early Warning Model For The Risk Of Working Capital Deficiency

As Chinese socialism market economy improving daily， the domestic economyis further integration into the global economy. This brings both opportunities andcomplicated and changeable international economic climate for Chinese companies.From the current global economic situation, the impact of financial crises has notdisappeared, and European debt crisis takes their place. Under the grim internationaleconomic situation, there is no easy way round the principle of developing thesuperior and weeding out the inferior in the market economy for Chinese companies.Whether companies can handle with risks properly and whether they can avoid orreduce risks before the risks coming become the principle for survivals of companies,so that risk management is significant more and more in fields of both theoretical andpractical. As an important aspect of financial management for companies, risks aboutworking capital are too valuable to be neglected. Formed by the unbalanced supplyand demand of working capital, the deficiency risk of working capital is related to thecritical point of a company. How to reduce this contradiction to an acceptable scalebecomes a problem crying for solution. In order to understand this contradiction andto find an efficient path to solve this problem, besides qualitative analysis with theattainable information, a quantitative early warning tool is needed as an assist.Researches on the risk of working capital deficiency can be found in parts ofother working capital researches. However, on the very beginning of this researchfield about working capital, there has been not mature model which can be used forthe early warning of this risk. Aiming at exploring construction methods andtechniques of the early warning model for the risk of working capital deficiency andproviding companies with quantitative analysis tools, this paper starts with theanalysis of the relative theories. Borrowing ideas from relatively mature theoriesabout the construction of early warning model for financial risk, this paper takes theanalysis on the influence factors about working capital deficiency risk with features ofretail industry as the first step to build the model. Taking Chinese listed retail industrycompanies as the example and making use of techniques about statistical analysis, thispaper use the public financial data to make its exploration and build a multivariate model for early warning the working capital deficiency risks. Examined by otherChinese listed retail industry companies financial data，this model can early warn therisk of working capital deficiency successfully in76.85%accuracy, reaching theresearch aim of this paper, offering companies with quantitative tools and quantitativeinformation for decision-making, and giving companies new methods on riskmanagement. The construction of this model, on one hand, provides companies toolsfor building the permanent mechanism for managing working capital deficiency risks,and once risk signals appear companies can take action properly to reduce the risk toan acceptable scale; on the other hand, it let the comparison among companies in thesame industry with uniform standards come true. Besides, in the view of macroeconomy, this result can offer the whole industry with uniform standards which dohelp to making economic policies for reducing interrelated risks.