3. An analysis of company performance using Dupont analysis A sheaf of papers in her hand, your friend and colicogue, Madison, steps 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 I don't want to start something new and then be interrupted by the meeting, so haw can I theip? MADISON. twe been reviowing the companyss financial statements and looking for was to improve our pericrmance, in general, and the compam's recurn on equity, or roes, in particular. Xervier, my new team ieader, suggested that I start by using a Dufore aralysis, and 1'd like to run my numbers and condusions by you to see whether live missed anything. Here are the balance sheet and income stacement data that Xovier gave me, and here are iny notes with rey calcilations. Could you start by making sure that my numbers are correct? You: Cive me a minute to look at these financial stoternents and to remember what 1 know about the Dupont analysis alog and study Tools tal Options lege success Tips reer success Tips Feedback If 1 remember corfectly, the Dupont equation breals cown cur RoE into three component retios: the the total asset. turnever ratio, and the And, according to my understanding of the DuFont equation and its calculation of foE, the three ratios provide insights into the company's effectiveness in using the compsry's assets, and Now, let's soe your notes with your rotiosi and then we can tak about possible strategies that will impiove the ratios. Tim gong to check the bax to the sise of pour calculated value if your cakulation is correct and learve it uncheched if your calculation is incorrect. MADISON: OK, it looks like TVe got a couple of incorrect values, so show me your caloulations, and then we can talk strategies for improvoment. You: I've fust mase rough calculations, so let me complete this table by inputting the compsnents of each rane and its value: Do not round intermediate cakifseians and round your final ansivers us to two decimins. Canis Majer Veterinary 5 upplles Inc. DuPont Analysis Do not round intermediate calculations and round your final answers up to two decimans. Canis Major Veterinary Supplies Ine, DuPont Analysis MADISON: I see what 1 did wrang in my computations. Thanks for reviewing these calculations with me rou saved me from a lot of embarrassment xavier would hove been vey dicappointed in me if t had shuaed him my originat work. So, now let's nwitch topics and identify general strategies that could be wsed to povitivey aflect Canis Major's RoEe? Yous OK, to given your inswiedge of the conponent ratios used in the DuPont equation, which of the foliowing strategies should Yout ox, so given your knowledge of the component ratios used in the Dupont equation, which of the following strategies should improve the company's ROE? talog and Study Toois ntal Options Hege Success Tips Check air that apply. reer Success Tips Increase the cost and amount of assets necessary to generate eech doltar of sales becsuse it will increase the companys total assets turnover. Use more debt financing in its capatal structure and increase the equity multiplier. Use more equity financiag in its capital structure, which will increase the equity multiplier. Decrease the company's use of debt capital because iz will decrease the equity multipler: MADISON: 1 think I understand now. Thanks for taking the time to go over this with me, and let me know when t can retum the favor
