8. The Dupont equation Corporate decision makers and analysts often use a particular technique, called a DuPont analysis, to better understand the factors that drive a company's financial performance, as reflected by its return on equity (ROE). By using the Dupont equation, which disaggregates the ROE into three components, analysts can see why a company's ROE may have changed for better or worse and identify particular company strengths and weaknesses. The DuPont Equation A DuPont analysis is conducted using the Dupont equation, which helps to identify and analyze three important factors that drive a company's ROE. Complete the following equations, which are needed to conduct a DuPont analysis: ROE = Profit Margin / Sales / Total Assets Total Assets Turnover these drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the varisus terms of the Dultont equation for three companies: Most investors and analysts in the financal community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a firm's net income by the firm's shareholder's equity, and it can be subdivided into the key factors that drive the ROF. Investors and analysts focus ont these drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the various terms of the DuPont equation for three companies: Refering to these data, which of the following conclusions will be true about the companies' ROEs? The main driver of Company As inferior ROE, as compared with that of Company C's ROE, is its higher total asset turnover ratio. The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its greater use of debe financing The main driver of Company C's superior flOE, as compared with that of Company A's and Company B's ROE, is its operational eficiency