Study On Diversification Of Enterprises And Financial Risk Control

Diversification used to be hot for a period of time and was favored by many manangers and enterprises.However,as people gradually understand the diversification,its wave has begun to cool down,and some enterprises with diversified business have turned into specialized operations.Since 2000,China’s garment industry has faced the transformation and upgrading of the industry,the impact of international brands into the domestic market and other factors,and because of these factors,the industry has to handle many problems such as increasing business risks,weakened profitability.In order to avoid the risks brought about by the single business operation and to create a new profit growth point,many garment turned to diversified operation,but the results were mixed.Diversified operations have brought excess returns to some enterprises.However,it has also caused some enterprises to fall into the financial dilemma.In theory,diversification can reduce risks and improve the competitiveness of enterprises,but in reality,it often brings a lot of financial risks to enterprises.Therefore,it is meaningful to find out and analyze the origins which cause the financial risks,the relationship between financial risks and diversification and to help companies have a deep knowldge about diversification.On the basis of the research on diversification and financial risk,this paper focuses on the business cases of Jiangsu Hongdou Industrial Co.,LTD which simply referred to as Hongdou Industrial.According to the financial data of Hongdou Industrial,the paper uses the financial indicators and F-score model to identify the financial risk under the diversification.Based on financial risk found,it is feasibleto explore the relationship between the company’s diversification and financial risks and finanlly draw conclusions.Finally,given that the reasons of risk induction,the paper can put forward financial risk control recommendations for other diversified business enterprises.After analysis,it was found that Hongdou Industrial did not have a reasonable plan for the implementation of the diversification strategy,and lacked awareness of fundraising planning.The improper financing method led to a sharp rise in corporate debt levels,a decline in financial leverage and a decline in solvency.Because of cross-industry operations,inventories increased,asset liquidity was affected,and the rate of capital recovery slowed down,resulting in unstable cash flow;the profitability of subsidiaries operating new businesses was less than expected,and the parent company inevitably assumed most of the financial risks.Although Hongdou Industrial also noticed the financial risks of the company,and made many adjustments to its strategic direction,the relevant indicators have been alleviated,but the results are still not satisfactory.Based on the above situation,from the perspectives of fundraising activities,investment activities and capital recovery,this pape advise to adjust the diversified industrial layout of Hongdou Industrial,rationally control the diversification degree,use risk transfer regulations to avoid corporate investment risks,reasonably match long-term and short-term liabilities,and establish perfect inventory and so on to control financial risk.At last,the paper hope to provide useful reference for other diversified business enterprises.