The relevant questions on centralized capital management of a group of enterprises
■In terms of financial management, what is the viewpoint to assess the true value of the sustainable development of an enterprise?
The post accounting which is based on balance sheet and income statement is no longer able to reflect the true value of en enterprise. More concern shall be paid to the capital operation capacity of an enterprise.
■In terms of management, how to enhance the capital risk control, increase capital efficiency and improve capital structure?
By changing the management thinking and system and resorting to the information technology, it is necessary to establish a centralized capital management system so as to protect the capital/finance against risks, to achieve the comparative advantages of capital allocated by the group as a whole, to increase the efficiency\profit of entire capital usage, to reduce the usage cost of capital, which has become the consensus of most groups of enterprises.
Centralization is a way to establish a management system and mechanism for the group of enterprises inside which there are game rules (such as uniform standards, business process and specifications). The subordinate units are empowered and the empowerment shall be parallel with the intensification of supervision, which makes it possible for the group to have a real-time and comprehensive knowledge of the actual operational state of the subordinate units.
The capital management of the group of enterprises shall focus on three centralized management approaches that are “budget management + procedures standardization + real-time monitoring ” to enhance the capital control of the group headquarters; it is necessary to break the self-managed and decentralized capital management pattern of each individual member unit in the group and to achieve “information centralization, management centralization, capital centralization” of the entire group to enhance the centralized supervision, management and control of the group over its subordinate member units;
How to improve the capital management structure in the group of enterprises?
Currently, the domestic groups are dedicated to improving their capital management system. In their business practice, they are facing a lot of problems such as more intensified market competition, more risks of operation, adjustments in capital structure, changes in government policies, etc. However, their existing capital management system is unable to play an adequate role in serving the operations of the groups and need to be improved in the following respects:
■Group Management and Control
Capital Management and Control
One of the characteristics of the group of enterprises is that it usually has a wide scope of business that often causes multiple accounts in the subsidiaries and external capital circulation, which may lead to a large amount of sedimentary money and the information loss of some capital to the group headquarters. These problems have a bad effect not only on the capital liquidity within the group but also on the management and control of the group over the capital of the subordinate units.
Financial Risk Control
By means of comprehensive credit line and guarantee instruments, it is advised to improve the capital management system, to enhance internal control and to improve the transparency of information in order to control and monitor the financial risks.
It is necessary to make the capital management to achieve scale effect.
Capital scale effect is an eternal theme for group of enterprises on its capital management, which means scientifically and properly centralizing the capital to maximize the profits of the group. However, subject to the constraints in information technology and management system, the capital in most groups is relatively decentralized, which cause a high cost in using and operating capital.
It is advisable to judge and predict the balance of the future capital as soon as possible in order to make preparation by raising funds.
According to the previous and present transactions and the predication of future business development, it is necessary to estimate the future capital demand, according to which the group can timely source from the internal and external resources of the group to deal with the capital deficiency.
It is advisable to make an integrative use of various financial instruments to reduce the cost of capital.
It is advisable to make a proper use of the business rules of various financial instruments and to optimize the progress and structure of debts in order to reduce the cost of capital.
It is advisable to timely analyze the investment orientations.
It is necessary to make a comprehensive use of various investment channels and financial instruments to develop investment businesses (such as stocks and shares, futures, bonds, fund, foreign exchange, inter-bank business, etc.) with an aim to raise the efficiency and profitability of the usable capital and provide financial service for the enterprise.
It is advisable to control the risk factors
The core of capital management is risk management. The profit or loss of capital management is determined by the capability and capacity of the group in risk management. The fundamental law of capital management is “the parallel between risk and profit”. This kind of parallel is especially clear in a bettered market. Therefore, the capability and capacity of the group in risk management can be regarded as one of the bottlenecks in the development of groups of enterprises.
It is necessary to change the management concepts and improve management methods.
The conventional enterprise management concept is that the emphasis of capital management shall be put on management, but the modern concept is that the emphasis shall be put not only on management but also on service.
It is necessary to change conventional pattern into digital management.
With the gradual conversion in management concept, the management methods shall also be improved, especially in digitalization of business management and the intellectualization of digital management to achieve an overall increase of competitiveness.
Objectives of Centralized Capital Management
■full monitoring on the investor’s part
Under the ownership structure of “two separated ownerships”, the information available to the investor is seriously inconformity to that available to the business operator. And it is an important criterion for evaluating the management efficiency of a company to maximize the protection of the interests of all investors. So the primary objective of capital control is to achieve security and authenticity.
■ Realize efficient allocation of resources.
The existing resources allocation problems include the coexistence of capital surplus and deficiency, the depletion of resources due to the inter-subsidiary battles, the incapability of forming integrative competitiveness, the separation between financing and investment, the loss of advantages that could be achieved by scaling the credit line and cost control of group operation, and the inability to realize the combination of industrial capital with financial capital. However, the centralized capital control can achieve this objective.
Facing the challenge of globalization, the risks before a group may include exchange rate risk, interest rate risk, liquidity risk, exposure risk, etc. If many kinds of these risks are uncovered, the group will be in great danger. However, by means of the capital centralization, professional financial management and risk-minimizing hedge these risks can be locked to smooth the cash flow of the company.
■Highly centralized information
By means of centralization the group can complete the conversion from regional system to global system which will support its expansion of global business. A shared service center will increase operation efficiency and reduce cost and help the group quickly grasp its financial results to make a global assessment of the performance of a program. In this way, the information can be improved in promptness, accuracy and security, which in turn will provide the enterprise with more useful information to make right decisions.
Inspur Solution to Capital Management
Inspur ERP-Financing Capital management solution (hereinafter referred to as the solution) is intended to establish an integrative and knowledge-based management platform for the Chinese groups of enterprises to improve their comprehensive competitiveness.
This solution aims at providing an overall support for the groups of enterprises in dealing with the capital operation and management in various forms. According to the different functions of the capital management agencies (settlement center, finance company etc.) in the above mentioned various forms, the solution is developed and designed as several layers or modules with different function. Each layer or module can used solely or be integrated together.
This solution regards workflow as the basis, business process as the platform and management and supervision as focuses. It is the perfect combination of post and organization, business process and workflow, and system management. The solution can be divided into three layers: the layer of group management and control, the layer of business execution and management, and the application layer.