an analysis of company performance using DuPont analysisHydra Cosmetics Inc. DuPont Analysis

Ratios	Calculation				Value
Profitability ratios	Numerator		Denominator
Gross profit margin (%)		/		=
Operating profit margin (%)		/		=
Net profit margin (%)		/		=
Return on equity (%)		/		=
Asset management ratio
Total assets turnover		/		=
Financial ratios
Equity multiplier		/		=

LANDON: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Amelia would have been very disappointed in me if I had showed her my original work.

So, now lets switch topics and identify general strategies that could be used to positively affect Hydras ROE.

YOU: OK, so given your knowledge of the component ratios used in the DuPont equation, which of the following strategies should improve the companys ROE?

Check all that apply.

Decrease the companys use of debt capital because it will decrease the equity multiplier.

Reduce the companys operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will increase the companys net profit margin.

Use more equity financing in its capital structure, which will increase the equity multiplier.

Increase the firms bottom-line profitability for the same volume of sales, which will increase the companys net profit margin.

Balance Sheet Data				Income Statement Data
Cash	$700,000	Accounts payable	$840,000	Sales	$14,000,000
Accounts receivable	1,400,000	Accruals	280,000	Cost of goods sold	7,000,000
Inventory	2,100,000	Notes payable	1,120,000	Gross profit	7,000,000
Current assets	4,200,000	Current liabilities	2,240,000	Operating expenses	3,500,000
		Long-term debt	3,640,000	EBIT	3,500,000
		Total liabilities	5,880,000	Interest expense	571,200
		Common stock	980,000	EBT	2,928,800
Net fixed assets	5,600,000	Retained earnings	2,940,000	Taxes	732,200
		Total equity	3,920,000	Net income	$2,196,600
Total assets	$9,800,000	Total debt and equity	$9,800,000