AOL had to evaluate the health of Time Warner before considering a merger by using financial statement analysis. Common tools for evaluating short-term solvency are the current ratio or the quick ratio, and for evaluating the activity, the total asset turnover, receivable turnover, and inventory turnover. For evaluating financial advantage, the organization should analyze debt ratio and interest coverage, to determine the profitability of a company, by reviewing the profit margin, return on assets, return of equity, and payout ratio. The last main aspect for evaluating a company is determining the value of the firm using the price earning ratio, dividend yield, market-to-book value, and the Q ratio (Jaffe, Ross, & Westerfield, 2005). Lester should use these analyses to evaluate its options.
Portfolio Management in the allocation of Corporate Resources Portfolio management focuses on strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk (Portfolio Management, 2008). In the case study, Lester electronics has a relationship with Shang-wa that has helped the company maintain profitability over the years. With the potential of a new merger for Shang-wa, Lester electronics have to determine the best strategic move that will also benefit its customers and other stakeholders.
Southwest airlines have conducted analysis to see what their options are and how best to make the company and its shareholders profitable. As the most profitable airline in the industry, many types of analysis are conducted to see how effective its business model is. An investor is interested in having a portfolio with high-expected return and a low standard deviation of return. In choosing the best combination of securities to hold, the investor needs to determine the relationship between the expected return on individual securities and the expected return on a portfolio made up of these securities.
The investor also needs to examine the relationship between the standard deviations of individual securities, the correlations between these securities, and the standard deviation of a portfolio made up of these securities (Ross et al., 2004). The investor faces an opportunity set when he selects the appropriate mix between two securities. Shareholders of LEI will need to have the right combination of stocks when determining the optimal use of the resources.
Lester Electronics is trying to determine the best strategy for the company and for its shareholders. Shang-wa may be acquired by TEC, thereby discontinuing the relationship that Lester and Shang-wa shared for years. Analysis shows that if the relationship between Lester and Shang-wa ended, there would be a 43% reduction in Lester’s revenues over the next five years. Lester will need to calculate the variance of the portfolio’s return to see what his viable alternatives are. Lester will need to determine if joining forces with Shang-wa will show a higher expected return. The option that Lester chooses will dictate its portfolio management strategies and how it will optimize and allocate its resources.
After completing an intense Benchmarking Research Analysis for Lester Electronics and the concepts such as capital management strategies, internal and external growth, cross-border growth, financials and portfolio management, the best option for Lester Electronics and Shang-wa is to merge together and continue having or expanding their partnership as corporations. This will be beneficial for them both, since it will not only protect both companies financially, but also provide them with the opportunity of improving their product and increase their demand globally besides increasing also financially.
In the research, Lester Electronics situation has been compared in different concepts to other companies that had the same issue of corporate growth or if a merger was beneficial for the corporations. In conclusion, it has already been discussed that if Lester Electronics lets go of Shang-wa, it would adversely affect Lester’s Electronics revenue over at least the next five years. Lester Electronics’ goal is to continue growth and increased revenue, their best option and guaranteed success is merging together.