Fundamentals of Corporate Finance Term Paper Example | Topics and Well Written Essays - 500 words

Fundamentals of Corporate Finance - Term Paper Example According to the research findings, it can, therefore, be said that the overall return on equity of the company has experienced a mild increase such that it climbed up to 16.20% in 2008 from 13.69% in 2006. A major factor which boosted such increase in ROE is the rising financial leverage despite the fact that the net profit margin and asset turnover of the company have declined. Thus, it can be concluded that the increase in both net income and equity in all the three years have effectively contributed to the higher return equity ratio of the company. The operating performance of the company is demonstrated by net profit margin. The net profit margin of the company has decreased from 2.36% to 1.91% in the period ranging from 2008-08. Although, the net income of the company has increased considerably, however, net sales of the company, has increased more than that of net income yielding in lower net profit margin. Due to the heavy increase in the total assets of the company, the tota l asset turnover of the company remained quite low as the total assets could not generate the similar level of sales. In three years’ time, asset turnover of the company has reduced from 2.62 times to 1.55 times. Financial leverage of the company has increased significantly because of the increase in total assets and stable equity position of the company. It experienced an increase from 2.21 times to 5.44 times in these three years which is more than double, contributing significantly to the overall return on equity of the company.