Case Study On The Causes And Countermeasures Of Huishan Dairy’s Financial Distress

Due to the rapid development of China’s capital market,a large number of enterprises are constantly entering the market,and the business risks of enterprises are increasing,which has caused more and more enterprises to fall into financial difficulties.At the same time,the regulatory mechanism of China’s capital market is relatively loose,which makes some companies cover up the facts of financial distress through various means,resulting in the quality of enterprises in the capital market,which affects investors’ investment decisions.Therefore,it is crucial to identify the financial status and quality of listed companies through a series of methods,and analyze the shortcomings of enterprises with financial difficulties to prevent the financial distress and protect the interests of small and medium investors.This paper selects Huishan Dairy for case study.On the one hand,since the melamine accident,the dairy industry has received much attention.China’s urbanization has become faster,residents’ income has increased,the “second child” policy has been introduced,and health awareness has increased.In terms of the situation,the dairy industry has a large room for growth.On the other hand,because Huishan Dairy is one of the leading companies in the dairy industry,there were a series of amazing situations in which the stock price plummeted and the capital chain broke in 2017.First of all,this paper introduces the research background and significance,and summarizes the relevant literatures that cause the financial distress of listed companies and the negative impact of unreasonable ownership structure.Secondly,this paper applies the principal-agent theory and the information asymmetry theory to the case study of Huishan Dairy using literature analysis,case analysis,and compares it with Mengniu Dairy to analyze Huishan Dairy.This paper makes a detailed review of the case of Huishan Dairy.From the four aspects of solvency,profitability,cash flow and shareholding structure,the financial indicators of the financial distress can be identified and analyzed.The capital structure and shareholding structure of Huishan Dairy cause the company to face the financial distress.Thirdly,the unreasonable capital structure of listed companies and the large shareholders’ encroachment on the interests of minority shareholders will seriously affect the value of the company,and will also harm the interests of minority shareholders.This paper analyzes the capital structure and the equity structure and concludes that the reasons for the financial distress of Huishan Dairy are: on the one hand,the debt financing ratio is too high and the short-term debt financing accounts for a large proportion,which has caused huge losses to Huishan Dairy.Repayment pressure caused its capital chain to break and fell into financial difficulties.On the other hand,the large shareholder’s shareholding ratio caused the major shareholder to pass undisclosed related party transactions.In the form of activities,equity pledges and other forms of misappropriation of funds,encroaching on the interests of minority shareholders,and shorting the company,Huishan dairy industry is facing the financial distress.Finally,in response to these problems,this paper proposes feasible suggestions for internal managers and external governments and social stakeholders: enterprises should optimize capital structure,improve governance structure,and establish risk prevention mechanisms;relevant government departments improve relevant laws.Regulatory systems,increase the cost of violations;increase financial standards such as banks and other financial institutions.This will help reduce the financial distress of enterprises and protect the interests of small and medium investors.