Financial Analysis For BASF And BYAER’s Diversification Company Strategy

During global top15ranking of the world’s largest chemical companies evaluated by C&EN journal of ACS(American Chemical Society), it is found that all these chemical companies are diversity company. We select BASF which is No.1and use Related Diversification Strategy and BAYER which is No.11and use Unrelated Diversification Strategy as object of study.Actually, there are few theoretical study and actual case study for connection between diversification strategy and financial performance. Therefore, to complement study of connection between diversification strategy and financial performance, this paper is focus on actual case study.This paper uses empirical study method. Beginning from sustainable strategy analysis, combining study among diversification strategy, the business layer competitive strategy and financial performance, we assess accounting policy, financial strategy of BASF and BAYER, structure mathematical model to forecast company prospect and financial distress.Main conclusions of this paper are as below:1. BASF is chemical base related diversity company, its mission is "We Create Chemistry"; BAYER is science base unrelated diversity company, its mission is "Science for a bettle life". Analysis of internal sales revenue among business units further proves BASF and BAYER’s company strategy.2. Most of BASF’s business units use Cost Leadership Strategy. BASF hopes its upstream product can be raw materials of downstream product, creates group chemical product cost advantage. BAYER’s main business-Healthcare and CropScience use Differentiation Strategy, so BAYER pay attention to innovation. Though BAYER’s sales revenue and total assests are lower than BASF, its research&development expense is1.7times than BASF.3. Main BASF’s product are chemical product, therefore its sales cost are high and occupy-70%sales revenue. Because most of BASF’s business units use Cost Leadership Strategy, its financial features are higher asset turnover ratio, lower sales expense, administration expense, research and development expense. Main business of BAYER uses Differentiation Strategy, therefore its financial features are lower asset turnover ratio, higher sales expense, administration expense, research and development expense. Overall, BASF’s profitability in sales, assests, capital is better than BAYER.Besides using intersegment sales to measure diversification level of BASF and BAYER, there are still2the innovation point on this paper. Firstly, use actual chemical company case to empirically study different financial features in Cost Leadership Strategy and Differentiation Strategy. Also, prove different strategy’s impact for financial performance during financial analysis. Secondly, use Linear Trend Extrapolation Method and TREND function to forecast sales revenue, get good coefficient of determination R2=0.96, it means good linear degree of fitting. Meanwhile, use Analysis of Regression to analyse relation between sales revenue and sales cost and forecast the value of sales cost. Get good mathematical model of sales cost which error is lower than1%.