Study On The Rates Of Assets And Liabilities Of The China Railway Group Limited

Since the Modigliani and Miller’s theory of The Cost of Capital, foreign scholarshave followed the Modigliani and Miller theory, the capital structure is a more in-depthstudy, put forward capital structure of the three theories, namely the trade-off theory, agencycost theory and the pecking order theory. Balance theory thinks debt tax effect of debt, inreasonable range, increasing debt can increase the value of the enterprise, so that the interestsof shareholders to maximize. That agency cost theory, the interests of different enterprisesin because of their respective interests conflict, resulting in agency costs. That the peckingorder theory of financing, enterprises should follow a certain order, first of all shouldadopt internal accumulation of capital enterprises, when internal funds can not meet the needsof the development of enterprises, from the outside to raise funds, in accordance withthe creditor’s rights financing first, raise equity financing the second way. Since then, thedomestic scholars based on the existing foreign capital structure theory, combined with ourcountry’s economic environment and the development situation of our enterprises’ financingstructure is analyzed, and the unreasonable financing structure lead to further study theproblem of high rate of corporate assets and liabilities.In recent years, the country vigorously the development of infrastructure construction,construction enterprises to seize the hitherto unknown opportunities, a large number ofcontracting the project. China Railway Group Limited as the leader of state-ownedconstruction enterprise, contract in a large number of projects. But with the increase ofengineering project, China Railway Group Limited also faces capital shortage problem,which is forced to use external financing method. In view of Chinese securities marketdevelopment is not perfect, many enterprises choose debt financing to raise capital, whichleads to high rates of assets and liabilities of construction enterprises.The ratio of assets to liabilities to pass a signal strength of the enterprise long-termsolvency to the outside, provided a guarantee for the investors’ investment behavior. At thesame time also regulate an important financial leverage of enterprise management. On the onehand, excessive use of debt financing will enable enterprises into rising debt costs, increasedrisk, debt paying ability weakened situation. At the same time, the high rate of assets andliabilities will also allow investors to the credit of the enterprises lose confidence, makingmany investors to avoid risk and not willing to lend, eventually leading to the emergence ofenterprises debt difficult problem. On the other hand, if the enterprise asset liability ratio istoo low, the debt tax effect will not be able to play to the limit, this is a loss to theenterprise. So, study reasonable asset liability ratio, whether it is from the perspective ofinvestor or business perspective, it is very important. In view of the above theory, this paper takes the construction of state-owned enterprisesChina railway as an example, starting from the angle of maximize the interests of theshareholders, to establish the reasonable asset liability ratio model, combined with the ChinaRailway Group Limited data, to obtain a reasonable interval of corporate assets andliabilities rate. At the same time, in the light of the causes of the high rate of corporate assetsand liabilities, find the improvement measures, so as to solve the financial problems of theenterprise.