Star River Electronics Ltd. – Case Analysis
Case Summary
Star River Electronics is a joint venture company that has gained respect within the industry for producing high quality CD-ROMs to major software companies. In the mid 1990s, multimedia products created a high demand for CD-ROMs, allowing manufacturing companies of all sizes to enter the market. As a result, an oversupply ensued causing prices to decline as much as 40%. Star River survived a period of consolidation, and now faced a new threat.
DVDs are alternative storage devices that offered 14 times more storage capacity. Surveys showed that DVD disc drives would increase from 7% to 59% of all optical-disc-drive shipments by 2005. …show more content…
The inability to turnover its inventory is contributing to the company becoming less liquid, utilizing their assets less efficiently, compressing their profitability margins, and increasing debt.
Growth rate is examined below in Table 4. The sustainable growth rate of Star River fluctuates from a high of 13.30% in 1999 to a low in 2000 of 7.41%. The dramatic drop off was due to mismanagement of resources (i.e. accumulating inventory) resulting in the company having a lower growth rate before it had to borrow additional funds to support growth. The compounded annual growth rate of 13.82% represents the amount the company could have grown had it grown at a steady rate. It is clear to see that Star River’s sustainable growth rate never reached its compounded annual growth rate, causing the firm to constantly increase its financial leverage in order