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1、Star River Electronics Ltd. Page iStar River Electronics Ltd.Team 14Constantine BrocoumCourtney DeliaStephanie DohertyDavid DuboisRadu OpreaDecember 19th, 2009Star River Electronics Ltd. Page iiContentsObjectives .1Management Summary .1Financial Health .1Financial Forecast for 2002 and 2003.3Key Dri
2、ver Assumptions.5Star River WACC .5Free Cash Flows of the Packaging Machine Investment.7Appendices .7Star River Electronics Ltd. Page 1ObjectivesThis report seeks to answer the following five questions about Star River Electronics Ltd.:1. Assess the current financial health and recent financial perf
3、ormance of the company. What strengths and/or weaknesses would you highlight to Adeline Koh? 2. Forecast the firms financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? 3. What are
4、the key driver assumptions of the firms future financial performance? What are the managerial implications of those key drivers? That is, what aspects of the firms activities should Koh focus on especially? 4. What is Star Rivers weighted-average cost of capital (WACC)? What methods did you use to e
5、stimate WACC? What are the key assumptions that especially influence WACC? 5. What are the free cash flows of the packaging machine investment? Should Koh approve the investment?Management SummaryFinancial HealthThe financial health or strength of a company is measured by its ability to service its
6、financial obligations senior to the common shareholders. These obligations include debt payments, preferred stock payments, the funding of any pension plans and rental and lease expenses. Below I have highlighted many of the weaknesses of the company.A common metric investors use to evaluate the abi
7、lity of a company to service its debt is the interest coverage ratio or times interest earned. Star River can only cover its interest by a little more than 2 times. This is a worrisome finding. This ratio has steadily decreased since 1999.The debt to equity ratios are consistently rising year over y
8、ear at a compounding at a rate of 18.1%. There was a 64% jump from 1999 to 2000. This is a worrisome trend.Inventories to COGS ratios are increasing dramatically. Operating margin % has decreased since 1998 both of which are not a good signs. ROA is a measures how well the firm is using its assets t
9、o generate earnings. The ROA has in general decreased by 6.9% since 1998 compounded annually. This indicates that the firm is not using its assets efficiently.Star River Electronics Ltd. Page 2The ROE has increased from 2000 to 2001 which may be due in part to the decreasing equity from the increase
10、d debt in that time period.Debt/total capital ratio is increasing steadily which is secondary to the increasing amounts of debt.Accounts receivable is increasing as is accounts payable. As time in AR increases the monthly flow of cash slows producing short term shortages of cash. This may be one rea
11、son for the increased short term borrowing. Shortages of cash can also cause problems for Star River paying their suppliers. This is seen in increasing accounts payable.A significant weakness of the company lies in the fact that it needs to borrow money for current operations. This when combined wit
12、h the need for capital expenditure (new packaging equipment) may be too much for the company to handle. If one evaluates the Balance sheet you will see that short term borrowing from the bank has increased dramatically since 1998. This indicates that current cash flows are unable to handle the daily
13、 financial needs of the company.Overall the companys financial position is precarious. They are taking on too much debt while making large capital expenditures. This in combination with delays in payments to the company by their customers (increasing AR) and increasing account payable is producing a precarious financial position. Star Rivers financial heal
