Star River Electronics

Star River Electronics LTD: Case Analysis

Star River Electronics LTD: Case Analysis

Executive Summary

Star River Electronics Ltd. is a large manufacturer and supplier of CD-ROMS based in Singapore founded from a joint venture between Asian firm New Era Partners and Starlight Electronics Ltd, UK. Star River is recognised in the CD-ROM manufacturing industry for producing high quality disks. A study however showed that DVD’s would bypass CDs within six years. Despite volume sales for Star River growing at a rapid rate, unit prices have declined due to price competition of substitute storage devices such as DVDs. DVDs have 14 times more storage capacity than CD-ROMS therefor CEO Koh needs to make a quick decision to save the prosperity of Star River Electronics. Koh would like to invest 54.6million into the DVD manufacturing equipment to build upon Star River’s reputation. Koh must decide whether to invest 1.82 million into new packaging equipment immediately or in three years. Despite increasing sales, Star River’s historical statements confirm increased days in receivables and decreased return on assets which is a poor indication of Star River’s future performance and limit its ability to gain further funding from stakeholders.

In order to ensure the continuation and financial stability of Star River Electronics Ltd., Adeline Koh the chief executive officer must convince the Company’s banker, Mr Tan to grant an extension of the Company’s loan as the company stands to improve its performance through DVD production.

Discussion

An initial look into the financial performance reveals that the annual sales-growth rate has been approximately 15%, however this appears to be the only good number from the analysis. From 1998 to 2001 the firms sales increased at a compound rate of 13.8%, yet net earnings remained fairly stagnant. Star River production costs and expenses have increased dramatically between 2000 & 2001 mainly due to equipment costs....