10. An analysis of company performance using DuPont analysis Walking down the hall of your office building with a sheaf of papers in her hand, your friend and colleague, Madison, stepped into your office and asked the following. MADISON: DO you have 10 or 15 minutes that you can spare? YOU: Sure, tve got a meeting in an hour, but 1 don't want to start something new and then be interrupted by the meeting, so how can 1 help? MADISON: Tve been reviewing the company's financial statements and looking for general ways to improve our performance, in general, and the company's return on equity, or ROE, in particular, Xavier, my new team leader, suggested that I start by using a Dupont anolysis, and rd tike to run my numbers and conclusions by you, to see if t've missed amything. Here are the balance sheet and income statement data that Xavier gave me, and here are my notes with my calculations. Covid you start by making sure that my numbers are correct? You: Give me a minute to look at these financial statements and to remember what 1 know about the Dupont analysis. If I remember correctly, the DuPont equation breaks down our RoE into three component ratios: the tumover ratio, and the the total asset And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's and ara-ai--ness in using the company's assets, how, let's see your notes with your ratios, and then we can talk about poss ble strategies that will improve the ratios. In the dropdown lists next to your values tim going to select correct if your calculation is correct and incerrect if your calculation is incorrect. MADISON: OK, it looks like tve got a couple of incorrect values, so show me your calculatiens, and then we can talk strategies for improvement: rout Tre just made rough calculations; so let me complete this table by inputting the components of each ratio and its value: Note: Do not round intermediate calculations. Round final answers to the nearest whole number. MADISON: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment Xavier would have been very disappointed in me if I had showed him my original work. So, now let's switch topics and identify general strategies that could be used to positively affect Canis Major's RoE. YOU, OK, so given your knowledge of the component ratios used in the DuPont equation, which of the following strategies should improve the company's ROE? Check all that apply. Decrease the amount of debt financing used by the company, which will decrease the total asset turnover ratio. Decrease the company's use of debt capital because it will decrease the equity multiplier. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin. Reduce the company's operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will increa the company's net profit margin. MADISON: 1 think t understand now. Thanks for taking the time to go over this with me, and let me know when t can return the favor