Research On Financial Appraisal In Enterprise Credit Rating

Following the development of market economy, enterprise credit rating is growing fast. However, nowadays the financial analysis of enterprise credit rating is still based on the traditional financial indicators. The all financial data of the indicators have been collected from balance sheets and profit charts, but the effect of cash flow on financial analysis is seldom considered. The deficiencies in traditional indicators are thoroughly analyzed, and cash flow analyses are introduced into enterprise credit rating in order to improve the accuracy of rating. The analyses are composed of four analyses of cash flow, such as indicator analysis, structure analysis, trend analysis and forecast analysis. At first the new financial indicators system of enterprise credit rating is presented, which is composed of the traditional financial indicators and cash flow indicators. The validation of the new system is tested by the analysis of examples. Secondly, based on factor analysis, the quantitative results of new financial indicators and traditional ones are given, which are consistent with the analysis of examples. The analyzed data comes from four Chinese Listed Companies' financial data form 1999 to 2006. Finally, the Conclusion is as following. 1. Because the accounting basis of the indicators selected by traditional financial indicators system is on the accrual system, the traditional system has its own inherent deficiencies and is not very sensitive to the variation of enterprise financial condition, has a time lag between the its results of analysis and the reality of enterprise. Thus, the traditional system reduces the accuracy of enterprise credit rating. 2. The new financial indicators system of enterprise credit rating can solve the shortage of original system and the sensitivity of the new system is increased. When enterprise financial condition is varied, the new system can immediately provide an early warning and feed back possible risks. As a result, the accuracy of rating is increased. 3. When cash debt due ratio, cash amount debt ratio and growth ratio of net cash flow from business operations are negative numbers simultaneously, the loss will happen in all probability in future. So the three indicators are regarded as an essential early warning.