Balance Sheet and Free Cash Flows
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 requirements of the firm in those years? Can the firm repay its loan within a reasonable period? 3. What are the key driver assumptions of the firm’s future financial performance? What are the managerial implications of those key drivers? That is, what aspects of the firm’s activities should Koh focus on especially? 4. What is Star River’s weighted-average cost of capital (WACC)? What methods did you use to estimate 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 Summary
Financial Health
The financial health or strength of a company is measured by its ability to service its 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 ability 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
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 requirements of the firm in those years? Can the firm repay its loan within a reasonable period? 3. What are the key driver assumptions of the firm’s future financial performance? What are the managerial implications of those key drivers? That is, what aspects of the firm’s activities should Koh focus on especially? 4. What is Star River’s weighted-average cost of capital (WACC)? What methods did you use to estimate 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 Summary
Financial Health
The financial health or strength of a company is measured by its ability to service its 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 ability 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