Study Of Financial Distress Assessment Model Based On The Sufficiency Of The Working Capital

With the economic development of China, more and more enterprises choose toimprove its competitiveness by listed, while the harm of the companies’ financialdistress has expanded. It not only causes losses of the investors, creditors and otherstakeholders, also threatens the stability of the capital market. But there is still noresult for how to construct a suitable financial distress assessment model in thetheoretical research. On the other hand, the new understanding of the economicactivities of enterprises has influenced many aspects of the financialmanagement theory, so the financial distress assessment model should alsobe improved.In the research of financial distress assessment model, financial indexes are oftenchosen from the four aspects of enterprise’s profit ability, debt paying ability,operation ability and development ability with no obvious economic logic. At thesame time, the existing evaluation models do not distinguishbetween debt in financing activities and business activities, so that the financialindexes are lack of the internal consistency with economic. Additionally it issubjected to prove that the foreign professional approaches adopted by the ratingagencies are applicable to Chinese enterprises.This article first reclassifies the enterprise asset and debate according to thenature of its economic activities. It analyzes the connotation of the financial crisisfrom the view of working capital management, indicating that thefinancial crisis happen when working capital from financing activities cannot meet thedemand of its business activities. This paper calls it the financial risk theory basedon the sufficiency of the working capital. This article chooses sample companiesfrom the listed companies in2010-2011years of Chinese A-shares stock market,defines special treated companies as financial crisis companies, and uses logisticregression to construct the assessment model of financial distress. After theoreticalanalysis, this article selects financial indexes from the two aspects of workingcapital demand and working capital supply. The statistics find that the ratio ofinventories in current assets, customer credit dependence, current assetsturnover, operation revenue scale, the ratio of other receivables in current assets, the short supply ratio, the ratio of net assets in total assets and state-owned holding size8indicators reflect the financial risk obviously. In these indexes, the ratio ofinventories in current assets, customer credit dependence, the ratio of otherreceivables in current assets and the short supply ratio have positive connection withthe possibility of financial distress, while other indexes have negative connection withthe possibility of financial distress. It also finds that it will influence the result ofassessment whether the enterprises are controlled by the state or not. The model willoverestimate the financial risk of listed companies without the variable “state-ownedholding size”.