A sheaf of papers in her hand, your friend and colleague, Chloe, steps into your office and asked the following. CHLOE: 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? CHLOE: 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. Eric, my new team leader, suggested that I start by using a DuPont analysis, and I'd like to run my numbers and condusions by you to see whether I've missed anything. Here are the balance sheet and income statement data that Erc 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. Balance Sheet Data Cash Accounts receivable Inventory Current assets $1,000,000 2,000,000 3,000,000 6,000,000 Accounts payable Accruals Notes payable Current liabilities Long-term debt Total liabilities Common stock Retained earnings Total equity Total debt and equity $1,200,000 400,000 1,600,000 3,200,000 4,500,000 7,700,000 1,575,000 4,725,000 6,300,000 $14,000,000 Income Statement Data Sales $20,000,000 Cost of goods sold 12,000,000 Gross profit 8,000,000 Operating expenses 5,000,000 EBIT 3,000,000 Interest expense 732,000 2,268,000 Taxes 793,800 Net income $1,474,200 EBT Net fixed assets 8,000,000 Total assets $14,000,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover ratio, and the equity multiplier net profit margin the total asset And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's use of debt versus equity financing effectiveness in using the company's assets, and 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 calculation is incorrect. Hydra Cosmetics Inc. DuPont Analysis Ratios Value Correct/Incorrect Value Correct/Incorrect Ratios Asset management ratio Total assets turnover 1.43 Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) 40.00 11.34 10.53 27.41 Financial ratios Equity multiplier 1.82 CHLOE: OK, it looks like I'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, se 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 decimals. Hydra Cosmetics Inc. DuPont Analysis Calculation Value Numerator Denominator Ratios Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Asset management ratio Total assets turnover Financial ratios Equity multiplier Check all that apply. Decrease the company's use of debt capital because it will decrease the equity multiplier. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total assets turnover. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover