Case Study On Financial Distress Of Baofeng Group Co.,Ltd.

As China's economy enters the state named the New Normal,the economic structure,growth rate and mode of growth of the whole society and various industries continue to change,as the result of that many enterprises are unable to pursue the speed of growth while taking into account the quality of development.In order to maintain and enhance their competitiveness,occupy the advantages both in size and scope in the changes of market,many enterprises continue to expand the scope of business and the field of operation.However,the rapid development does not bring the desired competitive advantages and juicy income for the enterprise,but leads to the distress that enterprise management is challenged and funds are stretched,which leads to financial difficulties,and even cause a large number of bankruptcy costs.Meanwhile it caused serious economic losses to many shareholders,creditors and other stakeholders,and undermine investors' confidence.Therefore,it is of great significance to explore the causes and countermeasures of the rapid development of enterprises' financial distress.This thesis takes Baofeng Group as the research object,combined with the theoretical basis of diversification strategy,corporate finance and corporate governance related,through reading domestic and foreign study of determination,causes and control of financial distress.This thesis carrys out a detailed analysis of Baofeng Group's organizational structure,development process,operating status,financial situation and the causes of financial distress,to a certain extent expands the scope and depth of research of financial distress.Compared with traditional industrial enterprises,one of the main characteristics of Internet enterprises is that light assets take the largest share.In the process of competition,the pursuit of business scale and scope of operation will lead to the wrong expansion strategy and radical capital structure.Therefore,for the study of the financial distress of Baofeng Group,the business activities of China's listed companies,especially the rapid rise of Internet enterprises in recent years,have a strong reference significance,and ring the alarm for enterprises to make excessive business decisions and financial decisions.Baofeng Group was popular with the market at the start of its listing,setting a record of 36 limit-ups in its first 40 days of trade.However,Baofeng Group's misjudgment of the market makes it difficult for its business scale to support the corresponding market value.This thesis explains the financial distress of Baofeng Group through both external and internal reasons.External reasons include China's deleveraging-themed macroeconomic policies since 2015 to combat debt speculation,with reducing financial risks and increasing general market interest rates as the money supply growth slows and related regulation tightened,so Baofeng Group's massive debt puts significant risk to its operating and financing.At the same time,many Internet giants in the relevant industry are more competitive,compared with the Baofeng Group,which in turn leads to a sustained decline in the main business earnings.Internal reasons include that Baofeng Group's diversification strategy of straying from its core business has led to the dispersion of corporate resources,difficulty in forming a core competitive advantage,and a large number of long-term investments have led to large-scale losses.Baofeng Group lacks a sound risk control system,the corporate capital structure is mainly short-term borrowing,and there is a short-term loan long-term investment of the radical financial behavior.Baofeng Group's lacks a sound governance structure,so Fen Xing,the shareholder taking the largest share,actual controls the enterprise and many subsidiaries,thus increasing the risk of Baofeng Group due to the excessive selfconfidence of managers which generally leads to decision-making errors and overinvestment possibilities.On the basis of the detailed analysis the causes of Baofeng Group's financial distress,this thesis puts forward corresponding suggestions,including: strengthening the core business,introducing partners;improving risk control system,such as establishing risk committee and improving financial early warning mechanism;perfecting the corporate governance structure and protecting the rights and interests of small and medium-sized shareholders.Because the financial distress case of Baofeng Group is more obvious typical,the relevant suggestions are of reference to the production and operation decisions of other companies,and provide a certain degree of help for many investors in the selection of investment areas and investment companies.