Lester Electronics scenario refers to many financial concepts including the evaluation of internal and external growth strategies, working capital management strategies to maximize shareholder wealth, challenges of cross-border growth strategies, assessments of organizational performance using financial statements and ratio analysis and portfolio management. These different concepts have been used in order to benchmark companies that may provide an investment alternative solution for the Lester Electronics that will ultimately optimize their portfolio for maximization of shareholder wealth.
In evaluating internal and external growth strategies, the concepts to consider include returns, holding period returns, return statistics, average stock returns and risk-free returns, and risk statistics. There are two components to returns, dividends and capital gains or losses. Dividends are profits distributed to shareholders. Capital gain occurs when stock increases in price. If the price drops there is a capital loss. Holding period returns are the total return from reinvesting the first year dividend in the stock market for an extra year and then reinvesting additional year dividends for the final year. The average return is the "best estimate of the return that an investor could have realized in a particular year over a period of time." The frequency distribution "plots the histogram of the yearly stock market return." (Ross, Westerfield, & Jaffe, 2004, pg. 244). By using the frequency distribution, the average returns can be calculated by adding up all the values and dividing by the total number. (Ross, Westerfield, & Jaffe, 2004, pg. 244). Average stock returns and risk-free returns are government issued bonds give risk-free returns as the "government can raise taxes to pay for the debt." (Ross, Westerfield, & Jaffe, 2004, pg. 246). The risk statistic measures the risk in returns "in terms of how spread out the frequency distribution... [continues]
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