Gap Analysis: Lester Electronics
Lester Electronics, Inc. has finally reached its decision: to merge with its long time supplier Shang-wa Electronics. What remains is to prepare a plan for that merger that focuses on the financial issues. Shareholders will want to know how this merger will impact them in the short term and how the combined company will look financially in the longer term. Company leadership will want thoughts on the combined capital structure post merger. The CFO will also need to determine if the funds exist or how instead the needed funds can be raised. LEI will want to know how much it can afford and what the capital structure will look like. This paper will attempt to address these questions.
Situation Analysis
Issue and Opportunity Identification
Poor management is a prime cause of business failure, but another important consideration is lack of capital. If LEI does not have enough capital, it might find things very difficult. As well as having sufficient capital, the CFO will need to plan how that financing is going to be used and managed. The CFO will not want to make errors by obtaining the wrong type of financing or by overestimating or underestimating the amount of financing that will be needed. Ways of raising financing are self funding from existing cash flows, debt funding borrowed from others, and equity funding raised by selling to others an interest in the business. The decision discipline as a whole may be divided between medium-term working capital management and long-term capital investment decisions.
The CFO will use financial planning models to determine the best course of action for this merger. Financial planning is comprised of the investment opportunities the firm elects to take advantage of, the amount of debt t ...