Corporate Finance: Jaedan Industries Term Paper

Excerpt from Term Paper :

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." Jaedan Industries' current ratios for the two years under consideration indicate that the firm would have no problem settling its short-term obligations if they were to become due. 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…

Sources Used in Document:

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.

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