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 conclusions by you to see whether I've missed anything Here are the balance sheet and income statement data that Eric 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. Income Statement Data $800,000 Accounts payable Balance Sheet Data Cash Accounts receivable Inventory Current assets Accruals 1,600,000 2,400,000 4,800,000 Notes payable Current liabilities Long-term debt Total liabilities Common stock $960,000 320,000 1,280,000 2,560,000 2,240,000 4,800,000 800,000 2,400,000 3,200,000 $8,000,000 Sales $16,000,000 Cost of goods sold 8,000,000 Gross profit 8,000,000 Operating expenses 4,000,000 EBIT 4,000,000 Interest expense 422,400 EBT 3,577,600 Taxes 894,400 Net income $2,683,200 Net fixed assets 3,200,000 Retained earnings Total equity Total debt and equity Total assets $8,000,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the net profit margin turnover ratio, and the equity multiplier 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 control over its expenses Now, let's see your nates 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 Canis Major Veterinary Supplies Inc. DuPont Analysis Correct/Incorrect Value Correct/Incorrect Ratios Value Profitability ratios Gross profit margin (%) 50.00 Operating profit margin (96) 22.36 Net profit margin (*) 33.54 Return on equity (*) 112.02 Ratios Asset management ratio Total assets tumover 2.00 Financial ratios Equity multiplier 1.67 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, 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 decimals. Canis Major Veterinary Supplies Inc. DuPont Analysis Calculation Numerator Value 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 CHLOE: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Eric would have been very disappointed in me if I had showed him my original work. So, now let's switch topics and Identity general strategies that could be used to positively affect Canis Major's ROE. YOU: OK, so given your knowledge of the component ratios used in the DuPont equation, which of the following strategies should improve the company's ROE? 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 Decrease the company's use of debt capital because it will decrease the equity multiplier. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin Use more debt financing in its capital structure and increase the equity multiplier