9. An analysis of company performance using Dupont analysis A sheat of papers in her hand, your friend and celleague, Nadson, steps irto pour uffice and asked the folloming. MADISON: Do you have 10 or 15 minutes that yeu can spare? You: Sure, Twe got a mesting in an hour, but 1 don't wamt to start something new and then be interrupted by the meeting, so hom can I heip? MADISON: I've been revieming the compamys financial statements and beking for ways to improve our pefformance, in genefal, analysis, and I'd like to nun my numbers and conchisiofs by you to see whether l've missed anything. Here are the balance shest and income statemert data that Xavier 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 a. these fnandal statemems and to remember wha. I know about the Dupont analysis. If I remember correctly, the Dupont equation breaks dom our RoE imto three component ratiss: the net profit margin v, the total asses tumover ratio, and the equity multiplier . And, according to my understanding of the Devork equation and its calculation of noE, the three ratios provide insights imto the cemparryt: use of debt veraus equity financing v, effectiveness in using the comparys assets, and control aver its expenses . Now, wrs see your notes with your fatios, afd then me can talk about possible strategies that. wil improve the ratios. I'm going to check the bax to the side of your caloulated value if your caloulation is cerrect and leave it unchecked if ysur cabulation is hoorrect. Canis Major Veterinary Supplies Inc. DuPont Analysis MADISON: OK, it looks like l'we pot a couple of incorrect values, so show me pour cakulationa, and then we can tak strategies for improvement. You: I've just made rough calculations, so lat me complete this table by inpulting the components of each fatio and ks value: Do not round intemiedate cabulocions and round pour hnal answers up to two docimas. Canis Major Veterinary Supplies Inc. DuPont Analysis MADISON: I see what I did wrorg in my computations. Thanks for reviewing these caleulations with me. You sarved me from a lot of embarrassmenti Xavier mould have been very disappointed in me if I had showed him my original work. So, nom let's switch topies and identify peneral strategies that cuuld be wed to pestively affect Canis Majer's ROE. You: OK, so given your knowiedge of the componenk fatios used in the Dupont equation, mhich of the following strabegies strould improve the comparys ROE? Check an that apoiry. Decrease the company's use of debt capital because it will decrease the equity multipiet use more equity finaneing in its capital structure, which will increase the equity mukieliar. Increase the frm's botters-ine proflcability for the same volume of sales, which will increase the companys net profit margin. Increase the efficiency of its assets so that it generates more sales with each dollaf of asset imestment and increases the companys total assets turnover. MADISON: I think I understand fow. Thanks for taking the time to go over this with me, and let me know when I can return the faver