Balance Sheet and Free Cash Flows

1155 Words Jun 7th, 2012 5 Pages
Star River Electronics Ltd.

Team 14
Constantine Brocoum
Courtney Delia
Stephanie Doherty
David Dubois
Radu Oprea
December 19th, 2009

Contents
Objectives 1
Management Summary 1
Financial Health 1
Financial Forecast for 2002 and 2003 3
Key Driver Assumptions 5
Star River WACC 5
Free Cash Flows of the Packaging Machine Investment 7
Appendices 7

i.
Objectives
This report seeks to answer the following five questions about Star River Electronics Ltd.: 1. Assess the current financial health and recent financial performance of the company. What strengths and/or weaknesses would you highlight to Adeline Koh? 2. Forecast the firm’s financial statements for 2002 and 2003. What will be the external financing
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The company needs an infusion of capital in order to maintain the actual growth rate.
It is unlikely the firm would recover unless inventories are reduced, especially in the context of weakened demand for CD-ROMs and the associated risk of having to deeply discount or even write them off.
Another item to correct is the Production costs and expenses, currently running at 50% of the revenue. The management has expressed concerns with outdated packaging equipment and the use of the more expensive second and third shift to catch up with production. An investment here would probably turn profitable in the context of healthy sale numbers.
Key Driver Assumptions
Sales is one of the major key driver assumptions because so many assumptions are based on a percentage of sales. As sales increases, so do production costs, admin and selling expenses, accounts receivable and inventories. Koh assumes that a 15% year over year growth is expected. This is a risky assumption since the market is moving away from cd technology to dvd technology. Star River has little capacity to support future dvd demand without taking on additional manufacturing investments.
Inventories are a staggering 60% of sales and are full of soon to obsolete inventory. It is possible that this inventory of cds will not be able to be sold at full retail value with the growth of the dvd market. Perhaps more important to the current financial outlook, as
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