Financial Risk Management Research

In recent years, the utility industry on electricity, as a capital-intense industry, has required a large sum of capitals due to its quick construction development. With accelerated development over science and technology, China’s corporations in the electricity industry need to face a macro-environment with huge uncertainty, which forced the corporates to prioritize the issue of financial risk management. The imperfections in our capital market and processes of China’s current reforms have, to some extent, driven the irrational behaviors in the financial market, which increases the potential financial risks, especially in the large electricity corporations. Therefore, it is practical to have an adequate judgment over the financial risk exited in the electricity corporations.Based on a brief introduction over the corporates’ financial risks on the background of electricity industry, with a short discussion about the results and insufficiency about current financial risk theories, this essay is to give a research typology and framework through the comparison and analysis over some conclusions over financial risk management drawn by overseas professors. Firstly, through checking the macro- and micro - economics analysis over operational environment, this essay would identify some main factors that affect the financial risks within the electricity industry. Further, after defining the reasons of financial risks, it will construct a model to judge the financial risks management. Some cases will be provided to exam the effectiveness and efficiency of those models. Last, according to the results concluded from the judgment, this article will provide appropriate measures over financial risk managements for electricity corporates, as a theoretical support to corporates’ accurate risk managements and determination pattern.The theoretical part introduced the concepts of financial risk, followed by analysis over the influences over corporate’s finances internally and externally. The internal factors focus on the traditional financial measures. By ensuring sufficient data inputs, the internal part will incorporates the traditional financial analysis to find out the most important financial indicators over electricity corporates. The external factors, on the other hand, will consider interest rates, the fluctuation over prices related to coals and electricity, the environmental protection policies, and so on. Those factors will assist to build up the evaluation systems about financial risk indicators, and interpret the possible control strategy in more details in the electricity industry.Based on the previous financial risk evaluation system, the last part of the essay is to take the State Grid in Province X as an example. After analyzing the main factors which forms the financial risks, as well as the financial statements from year 2008 to year 2012, it will utilize the model to assess State Grid’s financial risk management performances over the recent 5 years to find out the efficient control strategy over the corporate.Hence, it provides a valuable experience to our electricity industry over the issue about how to enhance the consciousness of financial risk management, and to advance the risk management effiiciency.