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Case Analysis of Star River Electronics Ltd.”

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Case Overview: Star River Electronics Ltd. Star River Electronics Ltd. is a large manufacturer and supplier of CD-ROMS based in Singapore. It was founded as a joint venture between an Asian venture capital firm, New Era Partners and Starlight Electronics Ltd, UK. It has enjoyed a great deal of success in the past, due in large part to their excellent reputation for producing high-quality discs. But due to recent emerge of Digital Video Disks (DVDs) Star River Electronics does need to face some problems. The conditions got worsen with the recent resignation of their former CEO. The new CEO Adeline Koh needs to face these problems. Digital Video Disks (DVDs) are expected to cut into the CD-ROM market in the very near future, but with 5% …show more content…

Star River’s current ratio indicates that it cannot cover its current obligations totally with its current assets. Low values (less than 1), however, do not indicate a critical problem. If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations. Financial Forecast: The second task that needed to be finished was to forecast the income statement and the balance sheet for the next two years. We grew sales at a 15% rate, which is the stated rate from Koh. Also, in forecasting the balance sheet, we only showed debt financing for the capital expenditure of the DVD manufacturing equipment, which was the requested structure. Other relevant facts and assumptions for preparing the financial forecast are stated below- Assume that sales will increase at 15% per year Operating expenses and operating profit will increase by the same percentage Assume that cash will increase at 15% per year Accounts receivable and inventories will also increase by the same percentage Assume accounts payable and other accrued liabilities will increase by 15% per year Interest expense is weighted for short-term debt and long-term debt: 6.53% The new DVD manufacturing equipment will cost SGD54.6 million The new equipment costs are paid throughout the next two years. The new equipment is depreciated over seven years in straight line method. Long term debt calculation includes private placement of 10mill loan, SGD8.2

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