Research On Financial Early Warning Model Of SME In Our Country Based On Factor Analysis

After reform and opening, the rapid development of SMEs in our country, had increasedthe energy in China’s market economy, and had been become the main force of China’s marketeconomy. SMEs have many advantages, as like flexible system,shorter management chain,closer to the market, efficient decision, low barriers to entrance, which has attracted a lot ofentrepreneurs. But at the same time,rapid development brings high risk. SMEs are small, facefunding difficulties, financing risk, investment risk and operational risk. The manager used topay attention to the financial statements of profits, lack of awareness of the potential risks andfinancial management capacity. Therefore, the establishment of financial risk early warningmodel is significant for middle and small-size stock panel.We have improved the definition of the financial crisis Andradc and Kaplan in1998touse the definition of two consecutive years of earnings before interest, taxes, depreciation andamortization/(interest expenses plus other charges) less than3.The companies said thefinancial crisis, corporate financial early warning research model.This article had chosen50financial difficulties companies as the sample, at the same time, this article had selectedanother50no financial difficulties companies as comparison samples whose production scaleare similar to the above-mentioned SMEs. Searched and seized financial indicators, usedfactor analysis methods to analysis financial indicators, derived factor scores and overall scorefor each SME, and identify the split point between financial risk enterprise and normalenterprise, and got financial risk early warning model. According to the model， we canaccurately predict the occurrence of SME financial crisis, help SMEs avoid financial crises.