How To Manage Financial Affairs Under Inflation

China has faced enormous challenges since 2009.

Q: since 2009, China faces enormous inflationary pressure. In 2010, inflation actually exceeded 5%, while inflation is expected to be no less than 4% in 2011.

What are the effects of inflation on corporate financial management? How should enterprises respond?

A: inflation refers to the phenomenon that the currency supply is greater than the actual demand of money under the condition of paper currency circulation, that is, the real purchasing power is greater than the output supply, resulting in currency depreciation, resulting in a sustained and generally rising price for a period of time.

In practice, inflation is generally not directly calculated, but indirectly expressed through the growth rate of the price index.

At present, most countries in the world are using the consumer price index (CPI) to reflect the degree of inflation.

In general, 5%>CPI>3% shows inflation. When CPI>5%, it shows that there is a serious inflation. In 2010, China is a relatively serious inflation. Enterprises and people generally feel that prices are rising significantly.

On Enterprise

Enterprise financial management includes

1., the impact of corporate financing and countermeasures.

Under inflation, most enterprises will be faced with insufficient funds and higher financing costs due to higher interest rates. Generally, we should pay attention to the following points:

(1) a floating rate should be adopted when issuing bonds.

Generally speaking, the interest rate of issuing bonds should be fixed within the fixed number of years, but during the inflation period, the interest rate of investors' bonds will be very low or even negative. Therefore, if fixed interest rates are adopted at this time, it will be difficult for investors to attract investors.

If floating interest rates are changed, as the price changes, investors will not lose too much. They can urge investors to buy bonds and complete financing. For example, when the interest rate of bonds is greater than 5% under severe inflation, they will be attractive to investors. When inflation is controlled, the interest rate of bonds can also be lowered correspondingly.

(2) high dividend policy is adopted in stock financing.

Generally speaking, the price of securities in inflation period is generally declining and investors are not interested in stocks.

Stock financing with higher dividend policy is easier to arouse investors' interest in stocks.

(3) change the structure of its own capital and liabilities.

When inflation occurs, interest rates are higher, but they always lag behind the rise of prices, resulting in real interest rates falling or even negative interest rates. Therefore, it is more advantageous for enterprises to adopt bank loans.

Enterprises can increase the proportion of debt and expand the role of financial leverage (for example, when the inflation rate exceeds 5%, the short-term interest rate is 3%, the real interest rate is -2%).

2., the impact and Countermeasures of enterprise investment management.

When inflation occurs, enterprises need to be cautious about investment. There are two countermeasures in financial management.

(1) authenticate, analyze the business cycle and choose suitable investment projects.

The economic cycle includes four stages: recovery, boom, boom and bust.

For example, during the recovery period, the demand for production materials, represented by steel and cement, is in short supply and prices are rising. During the boom period, the prices of high-grade production materials continue to rise, exceeding the speed of ordinary means of production. If we are in the recovery period, we can consider investing in production funded projects, while in the boom period, we should consider high-grade consumer goods projects.

(2) improving depreciation methods.

Enterprises can shorten the period of depreciation, accelerate depreciation and curb the adverse effects of inflation within the scope permitted by the financial system.

Since depreciation does not change with inflation, late depreciation can provide tax shielding effect, overcoming the impact of inflation and increasing the net present value of project investment (for example, adjusting the depreciation period of the original office equipment from 10 years to 5 years, so that the depreciation cost of the adjusted office equipment is 2 times that of the original, and the tax can be reduced when serious inflation occurs.

3., the impact and Countermeasures of enterprise operation capital management.

Inflation will inevitably increase the cost of enterprise capital use, so enterprises need to save operating capital and improve the efficiency of capital use.

(1) net debt management is applied to monetary fund management.

When inflation occurs, especially when inflation rate is higher than interest rate, holding monetary funds will suffer losses due to the decline in purchasing power. On the contrary, monetary liabilities will gain profits due to the decline in purchasing power, which will exceed the losses suffered from the decline in purchasing power of monetary assets, so that net income of purchasing power can be obtained.

For example, when the inflation rate is 5%, the bank interest rate is 3%. If there is 100 thousand yuan in the hand, the actual purchasing power will be reduced by 2000 yuan due to inflation. If 100 thousand yuan is an enterprise liability, because of rising prices, it will only need to sell less than the previous products to repay the 100 thousand yuan debt.

(2) the excess reserve method is applied to physical funds.

The so-called physical capital includes stock of raw materials and products.

Increasing inventory can ensure the production and sale needs of enterprises, achieve balanced production and prevent accidents, but also increase the cost of reserves.

When prices rise, interest rates will not only bear the economic slowdown brought about by tight money, but also raise the cost of capital substantially because of rising interest rates.

Therefore, when capital is changing, the amount of money capital will be reduced accordingly, so buying physical assets is a good way to avoid it.

The rise in physical asset prices caused by inflation will be much higher than the rate of interest rate rise. Therefore, the acquisition of physical assets can not only preserve value, but also increase value, and it can well resist the risk of inflation.

For example, at the early stage of inflation (3%), if the enterprise purchased 100 thousand yuan raw materials, the raw materials purchased before the severe inflation (5%) would rise by 2000 yuan from book value.

Q: in recent years, Noah's wealth has been successfully listed on the New York stock exchange, and the "third party financing" has become a new term.

So, what is "third party financial management"? What opportunities and threats are the development of the third party financial institutions?

A: Generally speaking, the third party financial management refers to those independent financial institutions. They do not represent banks, insurance, securities, funds and other financial institutions. They can independently analyze their financial status and property needs, formulate financial plans for customers, and provide comprehensive and reasonable financial services.

From a global perspective, the United States is the most successful place to conduct third party financial management, and its independent third party financial institutions have more than 60% of the market share.

Compared with the US and other European and American countries, the third party financial market in Asia is still in its initial stage.

Hongkong and Taiwan are also the third party financial institutions that have only begun to appear in the past ten years.

Mainland China started late in this area.

Generally speaking, the third party financing is still a brand new industry in China.

The rise of the third party financial institutions is mainly due to the following two main advantages:

(1) omnibearing financial services.

At present, China's financial market is mainly concentrated in banks, securities, insurance, funds and other traditional financial institutions.

As China's financial sector manages by separate operation, the products provided by different financial institutions are strictly limited, so it is difficult for traditional financial institutions to provide customers with comprehensive financial services.

For example, in the Circular of the China Banking Regulatory Commission on further regulating the investment management of commercial banks' personal financial services, the eighteenth, nineteenth stipulate clearly that financial funds should not invest in stocks or related securities funds that are publicly traded in the domestic two level market, and do not have to invest in shares that are not publicly listed companies or companies that are not publicly issued or traded. They can only be invested through private banking business.

In fact, private banks generally require minimum assets management of 800~1000 million, which is difficult for ordinary customers to achieve.

The third party financial institutions can integrate all kinds of financial products and provide a full range of financial planning and services to customers through a large and full product platform.

(2) be fully committed to the interests of customers and provide customized financial planning.

At present, the revenue of traditional financial institutions' financial services mainly comes from the sale of financial products. Therefore, they mostly recommend products developed by this financial institution, and in order to accomplish their performance indicators, they are "to sell the fruit and sell their own products" to a certain extent.

Therefore, relying on the traditional financial institutions, financial management departments, in the process of product promotion, it is very difficult to be objective and fair, and it is difficult to really meet the needs of customers.

On the contrary, because the third party financial institutions can not be affected by this influence, they can analyze the situation of their customers objectively from an independent angle, and make overall financial strategy and plan based on this, so as to help customers establish a feasible and customized execution plan to meet the needs of customers.

Compared with traditional financial institutions, the third party financing has obvious advantages, but in the current development process, they also face two main problems:

(1) vacuum in policy environment.

At present, there are no clear legal departments and regulations governing the third party financial institutions in mainland China.

According to news reports, at present, there are more than third financial institutions in mainland China.

The lack of supervision results in the uneven distribution of the third party financial institutions, to a certain extent, resulting in insufficient trust in these institutions.

And the introduction of relevant laws and regulations in the future will have an important impact on them.

This is the most important problem faced by the third party financial institutions.

(2) the lack of credibility results from the profit model.

From the perspective of the income of third party financial institutions, the most important ones are the collection of membership fees or consultancy fees, the sale of financial products and the collection of sales commissions by the upstream departments in two forms.

Since the third party financing is still in its infancy in China, its social cognition is not high enough.

At the same time, Chinese consumers show a certain exclusion from the fees such as membership fees.

As Chen Yan, general manager of Noah's wealth research department, said in an interview, "third party financing is still relatively cloudy in China.

Noah, as one of the largest third party financial institutions in China, has accumulated quite a lot of talents, but still finds it incapable of charging clients for consulting fees.

Therefore, at present, the main revenue of the third party financial institutions in China is the Commission earned from the sales of upstream financial products.

This directly leads customers to doubt whether the third party financial institutions can stand on a fair and objective position.

In addition, the lack of outlets, lack of channels and customer resources is also an important factor restricting the development of the third party financial institutions.