A Study Of Enterprise's Financial Crisis Early-warning Based On Free Cash Flow

With the speeding development of the integration process of the domestic and foreign market, enterprises are facing more brutal survival and the development competition and the number of bankrupt companies was rising sharply because of financial crisis. Against this background, the establishment of financial crisis early-warning models for China's listed companies to determine whether the company will face a financial crisis has very important significance to the stakeholders.The most important two aspects of construction of the financial early-warning model were financial early-warning indicators and methods. This article reflects on the the early warning of financial crisis from the perspective of indicators. At this stage, indicators used in the study of enterprise financial crisis early-warning primarily are traditional financial indicators, indicators of cash flow also be introduced to models of enterprise financial crisis early-warning by some scholars. However, the accrual-based financial indicators are vulnerable regulation, and not consistent with actual income and expenditure; indicators of cash flow overcome this shortcoming, but they are not taking necessary expenses for the course of ongoing into account neither. To compensate for these shortcomings and also to predict financial crisis more efficiently for the enterprise, this article re-builds an early warning indicator system based on free cash flow and model. In addition, it is worth mentioning that this paper takes the differences between industries of sample into account when selecting research samples and uses cluster analysis method to reduce the effects.This article chooses 72 companies which face"unusual financial condition"in A-share market as the research samples. Then find another 72 normal companies as the matching ones according to the industry, the asset size and the fiscal year so the final sample includes a total of 144 listed companies. In virtue of SPSS13.0, firstly,this article tests the significant differences of 11 financial indicators between the ST companies and the non-ST companies,and selected 9 indicators which have remarkable contribution to the model; then the study uses Factor Analysis to reduce indicators and avoid the multi-collinear influence; and finally we get models in three years before financial crisis of listed companies in China, we also examined the validity of the models.The result indicates: the return rate of accuracy of the previous one years'warning model on financial crisis is 88.20%, accuracy of the previous two years'is 79.17%,accuracy of the previous three years'is 72.22%. This paper argues that the judgment accuracy is ideal for the accuracy rates are close to 90% and 80% respectively for the previous one year'and two years'accurate rate the accuracy for the previous three years'was only about 70%,which also has certain application value if we taking the time span of three years in advance into account. In addition, we find that the early-warning model based on free cash flow have better judgments for financial crisis caused by blind investment in the model's application process. By observing the calculation of free cash flow process at different years, we can easily determine whether corporate's capital budget is reasonable or not.At last, the article summarized the research findings and put forward corresponding countermeasures according to a variety of causes of enterprise financial crisis. Then the article points out the research's shortcomings and further trends.