14. The DuPont equation Corporate decision makers and analysts often use a technique called DuPont analysis to understand and assess the factors that drive a company's financial performance, as measured by its return on equity (ROE). Depending on the version used, the DuPont equation will deconstruct the firm's ROB, its best measure of financial performance, Into two or three mportant factors, or delivers. DuPont analysis can be conducted using either the traditional DuPont equation or the extended DuPont equation. The traditional equations constructed using two drivers, whereas the extended DuPont equation uses three variables to examine afirm's Roll performance. Complete the following sentences by entering the appropriate words or phrases. In the extended DuPont equation, a firm's Rot reflects (1) its use of debt financing, or leverage, as reflected by its (2) the efficiency with which it uses its assets, as measured by the and() isability to generate sales and manage ts production costs and operating expenses, a summarized by its In contrast, in the traditional version of the equation, the firm's efficiency and profitability metrics are multiplied and summarized in a single measure the In this analysis, a company's financial performance is expected to result from both management financing decisions and its effectiveness and efficiency in generating profits using the firm's asset bare Most investors and analysts in the financial community observe a firm's closely. The Roe can be calculated by dividing the firm's not income by the shareholdersequity, or it can be reduced into the key factors that drive the Roe. Investors and analysts like to focus on these drivers to develop more holistic image of what is changing within a company An analyst collected the following data for firms operating in the transportation sector. Use the data to compute the net profit margin (NPM), total asset turnover (TAT), and equity multiplier (EM) values required for a Dupont analysis Note: The following dollar values are expressed in millions of US dollars) Note: The following dollar values are expressed in millions of U.S. dollars.) Net Income Firm NPM TAT ROE EM 3.23 Total Assets $28,141 $5,641 $28,199 Common Equity $8,700 $2,431 $10,669 Sales $10,636 $18,158 $9,516 $1,563 $180 14.70% 0.99% 3.22x B C $1,496 2.64 0.34 Referring to this data, which of the following conclusions is true about the companies' ROES Although the three firms exhibit relatively similar efficiencies in managing its awet bases, firm is marginally better in doing so. Company S ROE performance results from its terrible profitability and cost-containment performance, and despite its superior asset- management productivity performance Firm A exhibits the lowest debt ratio among the three firms Compared to firms A and B firm exhibits the worst job of managing its operating efficiency by reducing its costs and tax burden