Risk Prevention Of Real Estate Enterprises Based On Free Cash Flow

This study is focused on using free cash flow indicator as the core indicator to establish a set of effective risk identification and prevention mechanism of real estate enterprises. Through analysis of key financial statement items which affect the free cash flow indicator project, the business risk and financial risk faced by real estate enterprises was identified. Besides, our study also proposes specific precautionary measures for identified risks of real estate enterprises.The objective of real estate enterprise in risk management is to maximize shareholder wealth. The most concerned problem of shareholders is the risk which directly affects the enterprise management decisions and financial decisions that causing the loss in the value of the enterprise. Based on the above analysis, this study revealed the applicability and superiority of using free cash flow as indicator for identifying and preventing the risk of real estate enterprises. In contrast with other traditional financial indicators, free cash flow focused more on the long-term interests of enterprise, and considered more about the interests of the enterprise stakeholders; it has the advantages which do not have.Due to the uncertainty and complexity of the external environment, the management risk and financial risk of real estate enterprise is high. External risk of enterprise must be converted to internal risk, as reflected in the financial statements of the deterioration of the financial position, cash flow and operating results, etc. Thus this study firstly search for the risk identification and prevention from financial statements, then analyzing the key financial statement items which influence enterprise business risk and financial risk, by virtue of the fluctuation of free cash flow indicator, following by continue to analyze the external factors, and identify the key business risk and financial risk of real estate enterprise at last.Finally, after series of analysis, combined with the application of free cash flow, this study proposed overall strategy and specific measures of risk prevention for the real estate enterprise. Real estate enterprise risk prevention of the overall strategy mainly include:free cash flow holding, the usage of free cash flow for investment, using free cash flow for repayment of the debt and distributing free cash flow as a dividend to shareholders. Real estate enterprise risk prevention measures can be divided into business risk prevention measures and financial prevention risks. Real estate enterprise business risk prevention measures based on free cash flow mainly include:sales volumes and selling price volatility risk, tax risk prevention based on free cash flow, increase of operating cash holdings, etc. Real estate enterprise financial risk prevention measures based on free cash flow mainly include:building with free cash flow as the core of budget management system, strengthening enterprise free cash flow of the cash inflows, the usage of free cash flow optimization of financing structure of the planning and time arrangement based on free cash flow and dividend policy.