Financial risks and its early-warning system1,the description of financial risksBeaver(1996) defines financial risk as:bankruptcy, defaulting cumulative preference share and debt. He thinks that,the deterioration of an enterprise depends on the following factors : payment at maturity; the cash fllow of the enterprise; profit rate to net worth; the capacity of obtaining capital inflow. Also Altman(1968) defines financial risk as a listed company that has been defined to be bankrupt by law. The lack of payment ability which was caused by the technological failure in found management . Generally these troubles are temporary and less important ,and are usually able to remendy , through various methods such as asking for a compromise through consultation ,and put off the the due to pay debts .In a word , if the problems are permanent , the enterprise may have to face the bankruptal liquidation ; however , if the problems are temporary ,the company may have a chance to get out of the tight spot, and turn a loss into a pofit !2,the relationship between financial risks and its early-warning system.Financial risks is not only associated with the companys survival and development , but also the interests of the investors,and the creditors. With the intensive development of Chinas market economy and the rapid development of the capital market, listed companies are threatened by financial risks. Which means that without a precaution system the corporate may get into a tight spot. As a matter of fact , it has become a great concern comprhesively by investors ,creditors, and some monitoring institutions of securities market .The early-warning system is available to for governors to knows more about the causes for financial crisis, so as to prevent financial risks . This early-warning system seems to operate after the symbol of financial risks . On contrary it has already listed all the possibilities of reasons for financial crisis and its monitoring data .It is a precaution system ,which is able to prevent and overcome the risk effectively when it is yet to come . 3,to review a few of the methods for financial risks early-warning system .There is a great range of methods for financial risks early-warning ,including univarlate , Muiriple Discriminant Analysis (MDA), Logistic ,Probit and ANN , which are majorly used . Here Id like to introduce two of them .First, UnivarlateUnivarlate a forecasting model ,which decides if an enterprise is faced with bankruptcy or not , based on one specific financial index. However , univarlatehas two significant shortcomings: Firstly, if only one financial index was set to judge , it will easily be decorated by the manager once it was revealed . Secondly, there will be controversies if more than one indexes were set to judge the financial state of a company. Univarlate is comparetively a simple way of early-warning for finance , it can be easily learnt and used , but it is less sensitive. In the prediction over last year Univarlate is of lower accuracy comparing to Muiriple Discriminant Analysis . On the other hand , when it comes to the prediction over the last 2 to 3 years , it can be of a great ability to forecast, which revealed that some financial crisis early began with some financial indexes deterioration .Second, Muiriple Discriminant Analysis (MDA)Muiriple Discriminant Analysis (MDA)，is also called Z Score .It is aimed at working out the variable which differs the most between two groups and dispers the least among the couple of group, through a series of statistical classification techniques,so as to transform the variable identifier into a categorical variable with the least loss of information . In this way, a multi-head linear equation is acquired which can highly improve the predicting accuracy . MDA forms an easy and understandable multi-head linear equation which provide a very high capacity in application. MDA is of high accuracy ,however there are some shortcoming as below: 1, it needs a quite large amount of work. 2, In the prediction over one year, MDA can be quite effective and accurate . But in the prediction over more than one year (generally 2 to 3 years) it wont be so predictable as it dose in the former situation，sometimes even worse than the Univarlate. 3, MDAsticks strictly to a hypothesis which is hardly full filled in reality ,in this way the Muiriple Discriminant Analysis (MDA) is greatly limited when putting into use. 4,Financial early warning system a brief introduction of Financial early warning system Financial early warning system of listed company is a monitoring system, on the basis of enterprise information, by means of financial report forms, operation plans and others financial data of listed company, with the aid of financial analysis methods, such as proportional analysis, mathematical model, distinguishes financial crisis according to signal come from early warning index and lift a warning to the listed company inter