Case Study On The Financial Distress Problem Of *ST Northeast Electric Development Company

With the rapid development of the Chinese market,fierce competition among enterprises has led to an increase in the operational risks and financial risks of listed companies,and more and more enterprises are in financial difficulties.Since China has not yet defined the definition of financial distress,and financial distress is an urgent issue in corporate financial management,the situation that enterprises are constantly in financial distress has gradually become the focus of various industries.The electrical equipment industry is an important part of China's national economy.In recent years,the electrical industry has experienced various problems such as imbalanced market supply and demand,product homogeneity,and declining corporate profits.At the same time,under the national policy requirements,the electrical equipment industry is ready to transform into smart manufacturing,this stage requires enterprises to have sufficient funds to maintain the development of the enterprise.If it falls into a financial crisis at this time,it will seriously affect the development of the enterprise and even go bankrupt and it is difficult to save itself.Therefore,this paper selects Northeast Electric Company as the case study object.Northeast Electric Company is the main base for scientific research,manufacturing and export of power transmission and transformation equipment in China.It is one of the major suppliers of domestic power transmission and transformation equipment and one of the leading companies in the industry.However,the company's net profit continued to be negative in recent years,and its operating status was not good,which seriously threatened the development and survival of the company.In 2018,the company was warned of the risk of delisting.This article will take Northeast Electric Company as an example to analyze the reasons for its financial distress and propose effective solutions,in order to provide warnings and reference opinions to listed companies that are also in financial difficulties,and effectively analyze their respective financial risks.It is of great theoretical and practical significance to find out its own business problems and take effective preventive measures to avoid losses caused by financial difficulties.This article will explore the above issues through the contents of the four chapters.The first chapter analyzes and interprets the financial dilemma and its related theories,summarizes the author's definition of the concept of financial distress,and expounds the relevant theories,thus improving the understanding of financial distress.The second chapter analyzes the background of *ST Dongdian Company and the status of financial distress,and observes the comprehensive capabilities of Northeast Electric Company through five financial indicators: debt paying ability,operational capability,profitability,growth ability and cash flow.Combined with the financial performance of the three competing enterprises in the same industry,Zhongheng Electric,Guangdian Electric,and Ankao Electric,the financial status of Northeast Electric Company is analyzed in a horizontal and vertical way.At the same time,it is also more scientific and intuitive by comparing the average values of various financial indicators in the electrical appliance manufacturing industry.The third chapter is to explore the main causes of the financial distress of *ST Dongdian Company from two levels of internal and external factors.The external factors mainly include the macroeconomic impact,the change of national policies and the internal competition of the industry.The internal factors mainly include imperfect fund management system,financial leverage negative effects caused by debt burden,strategic decision errors,corporate governance structure defects and no risk early warning mechanism.The fourth chapter,based on the analysis of the causes of the third chapter,draws the reasonable suggestions of *ST Dongdian Company to get rid of the financial dilemma and the enlightenment to other enterprises.Six suggestions for the financial distress of Northeast Electric Company were put forward: optimize the management of enterprise funds to improve the efficiency of capital use,rationally use financial leverage to improve the efficiency of corporate financing,plan the development strategy of enterprises in combination with their own situation,optimize the shareholding structure and improve the talent system,and strengthen Reform of internal control system,establishment of financial risk early warning system,and strengthening of technological innovation in order to transform into intelligent manufacturing.By studying how Northeast Electric Company can save itself,the author concludes that the predicament is not desperate and should be actively faced;risks and benefits coexist,and should establish a good sense of risk;enterprises should plan the development path according to their own situation.The research results of this paper hope to help listed companies with financial difficulties to integrate their own business characteristics and management models applicable to the industry into the corporate finance and management system,and to explore ways to get rid of difficulties as soon as possible.