Stduy On Early-warning System Of Cash-flow Risk Of SMEs

Cash is the soul of enterprise. It is particularly important to small and medium enterprises, Sufficient cash flow is an important prerequisite for sustainable development of enterprises. Once the cash drying up,it not only affects the normal oporating activities, while leads to bankruptcy. To ensure healthy and sustainable development of SMEs, studying on cash flow risk is essential.Cash flow risk of SMEs is the article's researching object. It's aimed to establish a Cash Flow Risk-warning System. The system gives warning signals according to different periods of company's cash flow to guide business operators to change their management models and to improve financial governance structure. SME's Cash Flow Risk Early Warning System includes Information Collecting System, Risk Identification System and Risk Management System. First, the Information Collecting System provides timely, relevant and scientific information about cash flow; and receives a variety of warning information in order to achieve self-renewal. The establishment of Risk Identification Systems is based on the cash flow structure and cash flow targets. The system can be decomposed into three subsystems:Cash Flow Structure Subsystem, Cash Flow Indicating Subsystem and Cash Flow Structure & Cash Flow Indicating Subsystem. Cash Flow Structure Subsystem identifies risks according to cash inflows and outflows of cash flow structure from corporate's three sub-economic activities. Cash Flow Indicating subsystem uses four categories of ten cash flow indicators to analyze the solvency ,present capacity, quality of earnings and development for enterprises from a quantitative point of view. Cash Flow Structure & Cash Flow Indicating Subsystem combines the qualitative analysis of Cash Flow Structure Subsystem and the quantitative analysis of Cash Flow Indicating Subsystem to determine the company's current cash flow risk. Risk Management System guides business operators to implement the relevant risk prevention measures based on warning signals given by Risk Identificating system.At the final part, it is about the practical application of SMEs'Cash Flow Risk Early Warning System. This chapter uses case study method to analyse the textile industry listed SMEs "* ST Demian" company. Research found that the company is currently facing serious solvency risk and operational capital risk。The warning conclusions are consistent with the actual situation of the company.It shows that the warning system is operational and effective. Chapter five summarizes the research and propose further research directions.