What is the firm cash conversion cycle

Assignment Help Corporate Finance
Reference no: EM131205196

Case - Star River Electronics Ltd

Questions-

1. Using financial ratios given in the case and other financial metrics, assess the current financial health and recent financial performance of the company? What picture are the ratios painting? What strengths and/or weaknesses would you highlight to Adeline Koh? What is the sustainable growth rate (SGR) for the firm? What is it telling you? What is the compounded annual growth rate (CAGR) in sales? What is that telling you?

2. What is the firm's free cash flow? What is the firm's cash conversion cycle? What picture of the firm's financial performance do these metrics paint? Develop a sources and uses of cash statement. What is the sources and uses statement telling you about the firm?

3. Calculate the historical ROIC for Star River. Does the trend suggest anything?

4. Forecast the firm's financial statements for 2002 and 2003.

Income Statement:

To develop your sales forecast 1. Use the outlook given in the case as one approach 2. Use linear trend extrapolation (See Excel book) to come up with a sales forecast for 2002 and 2003. Are the numbers different? If so, why?

For production costs: 1. Estimate based on the percent of sales for 2001. 2. Use linear trend extrapolation to come up with a production cost forecast for 2002 and 2003. Are the numbers different? If so, why?

For the remaining Income Statement items:

- Admin & Selling Expenses: Use percentage of sales

- Depreciation Expense (2002): estimate using by adding the depreciation charge for the New equipment to the total depreciation expense for 2001. Repeat for 2003.

- Interest expense: Assume equals 8%.

- Taxes: See foot note in Exhibit 1

- Dividends: Consistent with policy

For the remaining Balance Sheet Items:

- Capital Expenditures (CAPEX): Consistent with case instructions

- Cash: Percentage of Sales

- Accounts Receivable: Estimate using average of days in receivables

- Inventories: Estimate using average of the COGS

- Payables: Estimate using the average of the COGS

4. What will be the external financing requirements of the firm in 2002 and 2003? Can the firm repay its loan within a reasonable time period? Why? Why not?

Note: You will have two sets of forecast: one set will use the sales forecast based on Koh's outlook. The other will be based on the liner extrapolation of the sales and COGS. Is there any difference between the external financing needed on each method?

5. What is your pro-forma profitability, leverage, asset utilization and liquidity ratios? What are they telling you about the firm's ability to service the debt? What is the proforma Free cash Flow and CCC? What is the SGR?

6. In performing sensitivity analysis on your projections, what is the trend in EBIT at higher growth rates? What does this suggest? Also, what are the implications for financing the firm long term based on sensitivity analysis?

7. Was the banker correct in stating that the firm had grown beyond its capabilities?

8. Based on your analysis, what aspect of the firm's operations should Koh focus on especially?

9. What is the WACC for Star River? What are the key assumptions in estimating the WACC? Since the cost of debt is based on market yields, the pretax cost of debt (the yield to maturity - YTM) can be calculated from footnote 2 Exhibit 2.

Exhibit 5 shows the beta for comparable firms. Use that information to estimate the beta for Star River. Also, note that financial leverage impacts the beta of a firm. So, the Beta for Star River will have to be re-levered to reflect the debt in its capital structure.

Step 1: Unlever the beta This unlevered beta captures the degree of risk in the firm's operations before financing:

βunlevered = βunlevered/[1+(1-t)D/E]

Step 2: Relever the beta:

βlevered = βunlevered[1+(1-t)D/E]

10. Compare the historical ROIC and the proforma ROTC for 2002 and 2003. Is value being created? What does the ROIC -WACC spread tell us?

11. How should the firm be restructured? What should Koh do?

Attachment:- Assignment.rar

Reference no: EM131205196

Questions Cloud

Establish retirement plan : Benedict is 37 years old and would like to establish a retirement plan. Develop a spreadsheet model that could be used to assist Benedict with retirement planning. Benedict’s expected annual expenses after retirement (current dollars) = $90,000 Rate ..
Prepare a critical book review about the given book : Prepare a critical book review (4-6 pages), Papers should be typewritten in 12 point font, with 1 inch margins on all sides (about 250 words/page). Essays must be typed.
Three-step binomial tree : (a) What is the value of a 6-month European call option with a strike price of $52 using a three-step binomial tree? (b) Draw the tree mark the value of the option on each nod of the tree.
Interest rates with quarterly compounding : a. Calculate the present value of $100 in 1.5 years (=18 months). b. Calculate are the equivalent 6-month, 12-month, 18-month, 24-month interest rates with quarterly compounding. c. Calculate the 6-month forward rate between 1.5 years (=18 months) a..
What is the firm cash conversion cycle : What is the firm's free cash flow? What is the firm's cash conversion cycle? What picture of the firm's financial performance do these metrics paint? Develop a sources and uses of cash statement. What is the sources and uses statement telling you ..
How in the exogenous growth model output : Explain how in the (Solow) exogenous growth model, output and consumption per worker converge in the long run to steady-state levels. Show that output per worker increases in the long run when the savings rate increases or when the population grow..
How these job skills can lead to improved job performance : Explain the connection between organizational behavior and your selected job skills from the matrix. Discuss how these job skills can lead to improved job performance.
Isle price promotion changes the price elasticity : An end of isle price promotion changes the price elasticity of a good from -2 to -3. if the normal price is $10, what should the promotional price be?
Which approach to dealing with criminals is best : Which approach to dealing with criminals and their victims is best - retributive justice or restorative justice? Why? Give examples to support your conclusion.

Reviews

len1205196

9/14/2016 2:10:16 AM

In Star River Case Analysis meet requirements mentioned in Guidelines carefully, instructions are attached. Aanalysis and recommendation as outlined in the syllabus. The objective of this assignment is to provide students the opportunity to identify, examine and analyze the problems faced by the financial manager of a firm. Part of this process involves identifying the goals and strategies of the firm as it operates within its particular environment. In addition, this assignment involves understanding and analyzing the impact that strategic financial decisions have on the firm.

len1205196

9/14/2016 2:10:15 AM

In Star River Case Analysis meet requirements mentioned in Guidelines carefully, instructions are attached. Aanalysis and recommendation as outlined in the syllabus. The objective of this assignment is to provide students the opportunity to identify, examine and analyze the problems faced by the financial manager of a firm. Part of this process involves identifying the goals and strategies of the firm as it operates within its particular environment. In addition, this assignment involves understanding and analyzing the impact that strategic financial decisions have on the firm.

Write a Review

 

Corporate Finance Questions & Answers

  A colleague who is aware of your understanding of financial

a colleague who is aware of your understanding of financial statements asks for help in analyzing the transactions and

  Provide advice on a number of long-term project proposals

Novation Ltd is a listed company that provides software and related products and services. Management of the company has approached you (a clever consultant) to provide advice on a number of long-term project proposals.

  Examine the needs for measuring assets at fair value in the

examine the needs for measuring assets at fair value in the following accounting standards nbspias3aasb 3 business

  Interpret the slope as a rate of change

Suppose you work as a business consultant. Corporations and governmental entities employed your firm to make recommendations for streamlining business operations, such as to create firms more fiscally sound.

  Mgt-660 capstone project overview

1.Describe the preferred timing and objectives of your business plan. Include an Excel spreadsheet with critical decisions and dates.

  Examine companys international business activity

Go to the websites of your selected companies and examine their international business activity. What percentage of revenues did these companies derive from their foreign operations in the last two most recent fiscal years?

  Whats the present value and future value

What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly and whats the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

  Calculate internal rate of return for each proposed project

Calculate the net present value of each project and state whether you would recommend Project 1 or 2. Calculate the internal rate of return for each proposed project.

  Compute the rate of depreciation per year to be applied

Compute the rate of depreciation per year to be applied to the plant assets under the composite method. Prepare the adjusting entry necessary at the end of the year to record depreciation for the year.

  Write a report to the owners detailing

Giving consideration to the various options, you have been requested to advise the owners of Johnsons what the various options are, outlining the positives and negatives of each. Required: write a report (should be extensive) to the owners detailing..

  What would the resulting enterprise value

How much total financing would be required if a go-private transaction was provided at $2.45 per share and what would the resulting Enterprise Value/EBITDA be based on a 25% premium buyback?

  Determine abcs equity value at the end of 2010

Calculate the valuation cash flow for each year and determine ABC's equity value at the end of 2010

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd