9. An analysis of company performance using DuPont analysis A sheaf of papers in his hand, your friend and colleague, Jason, steps into your office and asked the following. JASON: Do you have 10 or 15 minutes that you can spare? YoU: Sure, I've got a meeting in an hour, but I don't want to start something new and then be interrupted by the meeting, so how can I help? JASON: I've been reviewing the company's financial statements and looking for ways to improve our performance, in general, and the company's return on equity, or ROE, in particular. Anja, my new team leader, suggested that I start by using a Dupont analysis, and I'd like to run my numbers and conclusions by you to see whether I've missed anything. Here are the balance sheet and income statement data that Anja gave me, and here are my notes with my calculations. Could 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 I know about the Dupont analysis. If 1 remember correctiy, the Dipont equation breaks down out ROE into three component ratios: the turnover ratio, and the And, according to my understandind of the Dufont equation and iss calculation of ROE, the three ratios provide insights into the company's affectiveness in using the company's assets, and Now, let's see your nates with your ratios, and then we can talk about possible strategies that will irnprove the ratios. I'm going ta check the bov to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Cepeus Manufacturing Tnc. Dupont Analysis Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I'm going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your caiculation is incorrect. Cepeus Manufacturing Inc. DuPont Analysis JASON: OK, it looks like t've got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement. You: I've just made rough calculations, so let me complete this table by inputting the components of each ratio and its value: Do not round intermediate calculations and round your final answers up to two decittalk. Cepeus Manufacturing Inc; DuPont Analysis ernberrassment Anga would have been vecy disapponted in me If t had sherwed hec iny originai work. S0. now tet's shitch tapies and idertify general strategies that could be issed to posinvely atfect cepeuty hict impreve the compariy's itch? Check all that apply. 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 furids because this will increase the company's net profit margin. Use more equity financing in its capital structure, which will increase the equity multiplier. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover. JASON: I think 1 understand riow, Tharks for taking the time to go over this with me, and let me know when I can retarn the favor
