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http://dx.doi.org/10.5394/KINPR.2015.39.1.69

An Empirical Study on the Estimation of Adequate Debt ration in Korean Shipping Industry: Focused on Water Transport  

Pai, Hoo-Seok (Department of Accounting, Kyungsung University)
Publication Information
Journal of Navigation and Port Research / v.39, no.1, 2015 , pp. 69-75 More about this Journal
Abstract
The concrete purpose of this study is to suggest actually a debt ratio to optimize the capital structure providing a kind of approach to estimate the proper debt ratio with an analytical model and empirical data in Korean shipping industry. The mathematical and analytical model is started from the first equation about ROE, return of net operating income on equity, with an independent variable, debt ratio. It is constructed with several parameters, ROS(return of operating income on sales), TAT(total assets turnover), and NFCL(net finance cost to liabilities). There could not be a certain relationship between debt ratio and ROS or TAT, while some correlation or causality between debt ratio and NFCL. In other words, most of firms with high debt ratio is likely to burden higher finance cost than others with low one. In this case, there is a linearity relationship between debt ratio and NFCL, so then the second equation considering this relation could be included within the analytical approach of this paper. To be short, if the criteria of adequate debt ratio has to be defined as some level of debt ratio to optimize ROE, the ROE could be illustrated as a quadratic equation to debt ratio from two equations. Next, this research estimated those parameters' numbers through the single regression method with data over 12 years of Korean shipping industry, and identified empirically the fact that optimal debt ratio would be approximately 400%. To conclude, if that industry's sales and operating incomes are stable, the debt ratio could be accepted until twice of 200% had forced in order to guarantee its financial safety in past time.
Keywords
Shipping Industry; Operating income to sales; Net Finance Cost; Adequate Debt Ratio; Optimal Debt Ratio; Return of Net Operating Income on Equity;
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Times Cited By KSCI : 1  (Citation Analysis)
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