Abstract
Based on the understanding of the main types and purposes of enterprise diversification investment, this paper conducts an in-depth analysis of the environmental, structural, and scale risks of enterprise diversification investment and uses this as the basis for the effective construction of a risk prevention model. It can help enterprises effectively avoid investment risks, avoid bringing huge economic losses to enterprises, and help lay a good foundation for the positive development of enterprises. With the rapid development of social economy, enterprises must realize diversified investment if they want to improve their market economy status. However, due to many factors, they face greater economic risks and even cause serious economic losses to enterprises. Therefore, effective measures must be taken to prevent risks and promote the sustainable development of enterprises so as to obtain more economic benefits.
Highlights
On the basis of theoretical analysis combined with specific cases of companies, the early warning system of financial risks is thoroughly studied. e analytical framework diagram for this paper is shown in Figure 1. e following flowchart explains the methodology and the complete process of the proposed method by classifying it into three major portions
According to the characteristics of the enterprise, the early warning system of the financial risk should be established by selecting indicators reflecting the risk of financing, indicators reflecting the risk of investment, indicators reflecting the risk of capital operation, and indicators reflecting the risk of revenue distribution, which together constitute the early warning indicator system of the enterprise’s financial risk
In the process of corporate diversification investment, it is necessary to clarify the content of risks and their impact and use this as a basis to establish financial risk awareness and achieve effective judgment of corporate investment opportunities
Summary
Enterprise diversification investment can be broadly classified into the following types [1]: (1) concentric diversification type [2], which refers to the development of investment and operation in a diffuse direction with the existing main business as the core, with correlation and noncorrelation characteristics; (2) vertical integration type [3], which can be divided into two forms: forward integration refers to the promotion of enterprises to expand their business scope and develop in the direction of the end market, and backward integration is the development of the upstream supply chain end; (3) the horizontal integration type, which refers to market-centered product sales, overlapping or spreading on the original basis, is a relevant diversification; and (4) the overall diversification type, which has a strong mixed nature, diversifying investments in technology, markets, and other aspects, both relevant and irrelevant. e main purpose of diversification is to avoid over-reliance on a single market, to diversify business risks and reduce the risks faced by unilateral investments, to increase revenue opportunities for the enterprise, and to promote the process of sustainable development. E main purpose of diversification is to avoid over-reliance on a single market, to diversify business risks and reduce the risks faced by unilateral investments, to increase revenue opportunities for the enterprise, and to promote the process of sustainable development. E main focus of this study is the early warning system for financial risks in corporate diversification. E selection of indicators is dependent on the selection of financial indicators that reflect the risks of corporate financing, investment, capital operation, and earning distribution. On the basis of theoretical analysis combined with specific cases of companies, the early warning system of financial risks is thoroughly studied. E rest of the article is organized as follows: Section 2 highlights some of the theoretical foundations such as the definition of risk and its classification and the content and placement of financial risk warnings.
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