On July 5, 2001, Adeline Koh was promoted as new CEO of Star River Electronics

Ltd. after the previous president and CEO had resigned to accept another CEO position with

another firm. Star River Electronics is a small manufacturer that supplies CD-ROMs and

DVDs for major software companies.

Star River quickly became one of the top manufacturers of these high-quality discs.

During the mid-1990s, the popularity of optical and multimedia products created a rapid

growth environment for CD-ROM manufacturers. This created a surplus that pushed prices

of optical and multimedia products down as much as 40%. Since Star River Electronics has

a strong reputation, the company’s volume sales have grown at a strong rate in the past

two years, while other CD-ROM manufacturers have struggled. However, the unit price has

decreased due to low price competitors and substitute products such as the digital video

discs (DVDs).

Star River Electronics decided to test how manufacturing DVDs could help with the

company’s sales, but those initial sales accounted for less than 5% of revenue at the fiscal

year-end 2001. With the hopes of increasingprofits from DVDs, Adeline Koh met with her

assistant, Andy Chin, to begin addressing some of the issues facing the company.

Assess the current financial health and recent financial performance of the

company. What strengths and/or weaknesses would you highlight to Adeline

Koh?

By examining Star River’s income statement, we were able to observe the continual
increase in sales, which should be positively reflected in the net earnings. Although there is
the steady growth in sales, the net earnings dropped to its lowest point of $4,889 in year