Star River Electronics Case

Star River Electronics Ltd.

Memo

To: Dr. Brian Boscaljon

From: Adam Leone and Jean Costa

CC: Adeline Koh, President and CEO, Star River Electronics

Date: 3/22/2011

Re: Financial Analytics, Star River Electronics

The Objective

Although there are many objectives to the Star River Electronics Case, they are all clearly defined and able to be determined with adequate accuracy given the information. Over the course of this case, we assume the role of a financial analyst as we are faced with the challenge of facilitating a change in leadership. With a new CEO in place, it is our goal to bring her up to speed with the current financial situation of the company, project where the firm is headed in the immediate future, and deal with some potential investment decisions with long term income implications. As a byproduct of these main goals, we will also be determining the key drivers of the firm’s operation and calculating a weighted average cost of capital.

Analysis of the Past and Present

When simply looking from a sales stand point, Star River has been on an upward trend, and had the most sales in recent history; however this is a misleading indicator. The profitability from those sales, have been decreasing. This means for every dollar we are making less. When looking at the Return on Sales ratio, Return on Equity, Return on Assets ratios we see a decreasing trend since 1998 for all three ratios. These three ratios really give a glimpse at how the company is doing. It indicates that the company has not been using its assets efficiently, and that investors are not fairing as well as previous years.

When analyzing the debt aspect of Star River, it appears that the ability for Star River to cover its debt has been slowly decreasing. In 2001 the coverage is at 2.18 which is a 11% decrease from the 2.48 coverage ability of 1998, this indicates that Star River’s capability to pay off its interest obligations is decreasing, a risky trend to see for any company that...