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…show more content…
This tells us what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; As Star River requires large initial investments it generally has lower return on assets. Leverage Ratio: The Debt-To-Equity Ratio The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Star River’s last year (2001) standing D/E ratio was 2.2 which is higher than its industry practice. A high debt/equity ratio generally means that the company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Debt-To-Capital Ratio The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. Star River has always depended much on debt for its financing and the trend shows this ratio may get higher in future. Star River, with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and

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