Investment Alternative Benchmarking for Bernard Lester
An effective strategy to maximize shareholder wealth is a key element in having a financially successful organization. When the people within a company have the knowledge, skills and abilities to contribute to the wealth maximization of a company, than the company is poised to success. Therefore, company management needs to identify and put into practice high-quality investment strategies. This paper looks at the financial and investment scenario of Lester Electronics, an electronics company that is looking to expand. The transition requires an understanding of concepts such as growth strategies, working capital management, portfolio management and corporate resources, and use of financial statements and ratio analysis. To put Lester’s situation into a real-world perspective, the writers examined actual companies and their wealth maximization approaches in similar circumstances as Lester.
Internal and External Growth Strategies
A company’s growth strategies are made up of investment returns such as dividends and capital gains (Ross, et al, 2004). Looking at returns, companies must consider such issues as holding periods (will a company hold onto its investment for one year or 10 years) and returns versus risk (risky investments tend to have a higher return, which is the “risk premium”) (Ross, et al, 2004).
Lehman’s risk management strategy was Value at Risk (Lehman Brothers, 2008), where the ”largest loss likely suffered on a portfolio position over a holding period with a given probability or confidence level is a measure of market risk, and is equal to one standard deviation of the distribution of possible returns on a portfolio of positions” (BusinessDictionary, 2008). VAR is higher risk when the market is volatile. Lehman's leverage of 30.7 to 1 was not in stable assets such as T-bills, bonds or commercial paper, which has more liquidity and can be traded everyday (Ross, et al, 2004). Lehman was...