Identification And Management Of Shipping Companies Based On Free Cash Flow Of Financial Risk

In market economy, with the deepening of market competition and enterprise reform, the enterprises face financial risk of all kinds unavoidably. Financial risks are widely-exist, which happen very often in daily operation. While companies have limited managerial resources, if we can identify the major financial risks, we will be able to more effective in the management of financial risks, which means avoiding occurrence of the risks more effectively or putting losses to the minimum when they are inevitable. Therefore, it becomes an important task for different industries to identify and control their own financial risks according to their certain business characteristics.Cash, the most important asset and also the representative of operational performance, goes through all activities in a company. Moreover, free cash flow is the basic indicator of the profitability, solvency and sustained development capability, which has more advantages and stronger functions compared with traditional ones in the aspect of measuring the operating capacity and financial risks.Through introducing free cash flow theory into financial risks management and integrating it into practice of shipping industry management, this paper studies identification and management of financial risk in shipping industries. Firstly, it introduces free cash flow theory and financial risks theory, and then reveals the inherent relationship between free cash flow and financial risks. Secondly, this paper analyzes the operational characteristics of shipping industry, and finds out quantitative risks that affect shipping industry's cash flow cycle. Furthermore, aiming at quantitative risks, this paper performs a case study with free cash flow as analysis tool in order to identify the major financial risks of shipping industries. Finally, the author comes up with some specific suggestions in the control of the major financial risks.