Research On Financial Risks And Prevention Measures Of Internet Enterprises Implementing Diversification Strategy

After the 1950 s,Western companies set off a frenzy of diversification and expanded their business to other industries.In recent years,diversification strategy has also been favored in China,especially in the Internet industry.The most typical one is Le TV.It extended its business to TV,mobile phone,automobile,finance and other sectors to build an ecological layout.In the end,it was defeated by capital problem,which leads to market thinking.What kind of financial risks will diversified enterprises face? How to prevent financial risks? Therefore,it is of great practical significance to study the financial risks of diversified enterprises.This paper mainly studies the financial risk problem in the diversified expansion of Internet companies.Based on portfolio theory,scope economy theory and synergy effect theory,this paper selects a diversified enterprise(Baofeng Group)as the case object,deeply analyze the motivation of diversification strategy,the financial risks and the causes,assisted by model analysis and event research method,and finally put forward corresponding suggestions on the prevention of the financial risks of the Baofeng Group and propose inspiration on how to implement diversification strategy for Internet companies.Through case study,this paper mainly draws the following conclusions: Firstly,Baofeng Group's diversification strategy includes related diversification and unrelated diversification,which is mainly based on the motivations of seeking profit growth points,obtaining synergy effects,and expanding market power;Secondly,the F-score model shows that Baofeng Group faces serious financial risks,mainly including financing risks,profit risks,cash flow risks,and operational risks.Diversification strategy makes the company face greater financial pressure.Baofeng Group has insufficient financing channel(equity pledge and borrowing),which results in weak financing ability.Besides,its current assets cannot cover current liabilities,thus debt repayment pressure soars;gross profit margin and net interest rate decrease year by year and the TV business damages the performance of Baofeng Group;the investment continues to expand,but the net cash flow from operating activities becomes negative and cash amount is declining year by year.Since there is always a funding gap,the company's cash flow risk outbreaks;in the operating activities,Baofeng Group's accounts receivable and inventory are facing large impairment risk.Thirdly,the main problems in the Baofeng group's strategy are the lack of core profit points,blind expansion(chasing hot spots and rapid expansion)and large capital demand;the main problems in the operating management are the lack of desirable talent team and lack of effective risk management system and lack of control measures for subsidiaries.Finally,in terms of risk prevention,Baofeng Group needs to integrate its business,improve the talent team and enterprise risk management system and strengthen control of specific risks.This paper mainly has the following contributions: Firstly,most of the current literature on diversification strategy and financial risk are based on empirical analysis and there are few studies on diversification strategies and financial risks in a certain industry.This paper selects the typical case Baofeng Group as the research object,analyzes the diversification strategy and financial risk of Internet companies,which can expand the research scope of diversification strategy and financial risk field.Secondly,unlike the common diversification strategy research literature,this paper interpreting the different stages of the diversification strategy and analyze its causal relationship with financial performance,which can explain the degree of risk effect after over-expansion.Thirdly,more and more Internet companies choose diversification strategies to obtain development.This paper aims to identify the financial risks under the diversification strategy through case studies and propose corresponding preventive measures,which can provide some reference for other Internet companies.