Study On Financial Risk Management Under The Diversification Strategy Of Oriental Yuhong

In response to the economic downturn,the market has become more competitive and diversification strategies are gaining more and more attention from companies to cope with the increasing competition.Diversification strategies have become the first choice for companies wanting to expand themselves and change their development status.And the waterproof industry entry threshold is low,many small scale waterproof material production enterprises only need two or three hundred thousand capital to form a production line,fixed asset investment is very low,so it is facing more fierce competition in the market.Diversification expansion is undoubtedly a good choice for waterproof enterprises,but the diversification strategy brings development opportunities at the same time also brings financial risks that can not be ignored,although there are many Chinese enterprises because of the diversification strategy to success,but more enterprises are in financial trouble.Based on the current state of research at home and abroad,the financial risk of Orient Yuhong’s diversification and expansion strategy is investigated with the help of economies of scale,portfolio theory and capital structure theory,and based on the entropy and efficacy coefficient methods.The research process begins with a review of the relevant literature and an elaboration of relevant concepts and theories,followed by an analysis of the entire process of financial risk management based on the procedures of financial management.Firstly,the financial risks are identified based on financial data;then the weights of the indicators are determined by the entropy method,and the financial risk levels are assessed according to the efficacy coefficient method,and the causes of the risks are analysed in the context of the current development of the enterprise;Finally,corresponding prevention suggestions are put forward according to the above four types of risks.Through the research of this paper,it is found that the most obvious problems of Oriental Yuhong at present are two points.Firstly,the amount of accounts receivable is huge and mainly for real estate enterprises.This leads to the inability to directly convert sales revenue into cash flow,and there is a certain risk of bad debts,which poses a greater threat to the company’s operations;secondly,capital flow is tight.On the one hand,the huge amount of accounts receivable will affect the speed of return of funds to Oriental Rainbows.On the other hand,Eastern Rainbows has been maintaining a large-scale expansion in recent years,investing in the construction of factories,setting up R&D bases,merging and acquiring other enterprises,etc.The company’s own funds cannot support such an aggressive expansion strategy,and the company raises funds through non-public offerings of shares and other means,which further indicates that the company’s own blood-making capacity is insufficient,and the demand for external funds is large.The paper analyses the financial risks associated with the implementation of diversification strategies,and proposes corresponding risk prevention measures so that Orient Rainbows,and even more companies of similar size,can avoid risks as far as possible on the road to diversification and expansion,and implement diversification in a more rational manner to maximise the utility of diversification.