Star River

In: Business and Management

Submitted By eram
Words 3235
Pages 13
Edwin Ramos
John Connors
Luciano XXX


1. Develop a report showing key insights on Star River historical performance by considering the income statements of the last four years (1998 to 2001). 2. Build a two-year performance financial forecast including debt requirements at the fiscal years ending 2002 and 2003. 3. Recommendations about operating and financial changes based on the historical analysis and forecast. 4. Analyse the option to invest now or wait three years to buy the packaging equipment.

1. Key insights on Star River historical performance by considering the income statements of the last four years (1998 to 2001).

* Interest coverage: as depicted in the graph 1.1L, the capacity of Star River to pay current interests with available earnings increased to 2.18 in the past fiscal year as a consequence of the increase of EBIT in about 18% and an interest expense decrease of 1.5% (see Annex 1). Even though, the ability of the company to meet its interest expenses may be questionable by the bank as generally, below 2.5 is considered as a warning sign of poor solvency.

* Debt to equity and debt to total capital: As a consequence of a higher year-by-year increase of debt in comparison to equity and total capital (see graph below), the debt-to-equity and the debt-to-total capital ratios present a growing trend. This aggressive leveraging aimed at financing operations, endangers shareholders’ and total capital benefits.

* Working capital cycle: A huge increase in inventory of 94.6% in the fiscal year 1999-2000 shows a big percentage of inventory held in terms of sales. This is, in average 74.8 SDG were held in inventory for each SDG in sales during 2000. This relation increased to 88.7 in 2001 (the Annex 3 shows the…...

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