Star River Electronics Case Solution
Florida Atlantic University
Star River Electronics Ltd. – Case Analysis
Case Summary
Star River Electronics is a joint venture company that has gained respect within the industry for producing high quality CD-ROMs to major software companies. In the mid 1990s, multimedia products created a high demand for CD-ROMs, allowing manufacturing companies of all sizes to enter the market. As a result, an oversupply ensued causing prices to decline as much as 40%. Star River survived a period of consolidation, and now faced a new threat.
DVDs are alternative storage devices that offered 14 times more storage capacity. Surveys showed that DVD disc drives would increase from 7% to 59% of all optical-disc-drive shipments by 2005. Star River Electronics began experimenting with DVD production but it only accounted for less than 5% of its sales in 2001. With an increase in capacity, Star River hoped that revenues from DVDs would increase.
Newly appointed CEO Adeline Koh is faced with decisions that will have significant financial consequences. Most notably, Koh is seeking an extension on a loan from Star River’s bank. In order to make a case for itself, Koh has appointed her assistant, Andy Chin, to evaluate the company’s historical financial statements and forecast the company’s performance over the next 2 years. In the forecast, Koh assumes that company sales will grow 15% annually, any external funding will come from debt, and also commits to the purchase of DVD manufacturing equipment. The goal of the forecast that will be presented to the bank is to prove that Star River can repay its loans and has not “grown beyond its financial capabilities”.
The following analysis will determine whether Star River has been managing its debt effectively, whether they can assume additional debt, any alternatives, and recommendations to operating and financial changes.
Case Analysis
The analysis will comprise of historical data and
Star River Electronics Ltd. – Case Analysis
Case Summary
Star River Electronics is a joint venture company that has gained respect within the industry for producing high quality CD-ROMs to major software companies. In the mid 1990s, multimedia products created a high demand for CD-ROMs, allowing manufacturing companies of all sizes to enter the market. As a result, an oversupply ensued causing prices to decline as much as 40%. Star River survived a period of consolidation, and now faced a new threat.
DVDs are alternative storage devices that offered 14 times more storage capacity. Surveys showed that DVD disc drives would increase from 7% to 59% of all optical-disc-drive shipments by 2005. Star River Electronics began experimenting with DVD production but it only accounted for less than 5% of its sales in 2001. With an increase in capacity, Star River hoped that revenues from DVDs would increase.
Newly appointed CEO Adeline Koh is faced with decisions that will have significant financial consequences. Most notably, Koh is seeking an extension on a loan from Star River’s bank. In order to make a case for itself, Koh has appointed her assistant, Andy Chin, to evaluate the company’s historical financial statements and forecast the company’s performance over the next 2 years. In the forecast, Koh assumes that company sales will grow 15% annually, any external funding will come from debt, and also commits to the purchase of DVD manufacturing equipment. The goal of the forecast that will be presented to the bank is to prove that Star River can repay its loans and has not “grown beyond its financial capabilities”.
The following analysis will determine whether Star River has been managing its debt effectively, whether they can assume additional debt, any alternatives, and recommendations to operating and financial changes.
Case Analysis
The analysis will comprise of historical data and