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Corporate Finance
Ratio
Liquidity Ratios
Current ratio
Activity Ratios
Inventory turnover
Total asset turnover
Debt ratios
Debt ratio
Debt-to-equity ratio
Profitability ratios
Return on common equity
Return on total assets
DuPont Analysis
The DuPont equation, according to Besley and Brigham (), can be captured as follows: ROE = Net Profit Margin * Total Assets Turnover
In a tabular form, this would be:
Net profit margin
Total assets turnover
ROE
The current ratios of Jaedan Industries do not differ significantly from the industry ratios for the two years under consideration. According to Besley and Brigham (2007, p. 52), this particular ratio "provides the best single indicator of the extent to which the claims of short-term creditors are covered by assets that are expected to be converted to cash fairly quickly."...
Next, we have the activity ratios, in which case the inventory turnover of Jaedan Industries is higher than the industry inventory turnover average for the two years under consideration -- an indication of strong sales, and, hence, manageable inventory. The total assets turnover of Jaedan Industries is also slightly higher than the industry average for both periods. A critical component of the DuPont equation, the slightly high total assets turnover ratio, with respect to Jaedan Industries indicates that on average, the company is raking in significant or higher assets for every dollar of assets.
Next, we have the debt ratios, which will come in handy as indicators of Jaedan Industries' long-term solvency. While the debt ratios for the year 2009 (with regard to the industry average and Jaedan Industries) are more or less similar, Jaedan Industries…
References
Besley, S. & Brigham, E. (2007). Essentials of Managerial Finance (14th ed.). Mason, OH: Cengage Learning.
Graham, J., Smart, S. & Megginson, W. (2010). Corporate Finance: Linking Theory to What Companies Do (3rd ed.). Mason, OH: Cengage Learning.
Financial Statements Jaedan Industries Income Statement For the year ending 31 December, 2010 Sales $42,000,000 COGS $26,460,000 Gross Profit $15,540,000 Operating Expenses Selling, General & Administrative $1,621,000 Depreciation $800,000 Earnings Before Interest & Tax $13,119,000 Interest Expense $375,000 Earnings before Taxes $12,744,000 Taxes $4,332,960 Net Income $8,411,040 Dividends Paid $2,102,760 Additions to Retained Earnings $6,308,280 Jaedan Industries Statement of Retained Earnings For the Year Ending December 31, 2010 Balance from 1 Jan 2010 $1,628,819 Addition: Net Income of year $8,411,040 Less: Cash dividends paid during the year Preferred Stock $8,000 Common Stock $2,102,760 Total Dividends Paid $2,110,760 Retained Earnings Balance as at 31 Dec, 2010 $7,929,099 Jaedan Industries Balance Sheet For Year Ended 31 December, 2010 Assets Cash $3,689,000 Marketable Securities $1,836,000 Accounts