Analysis of Financial Statements: Tying the Ratios Together The DuPont equation shows the relationships among asset management, debt management, and -Select- ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: ROE = Profit margin x Total assets turnover x Equity multiplier Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select- factors also need to be considered. Quantitative Problem: Rosnan Industries' 2022 and 2021 balance sheets and income statements are shown below. Balance Sheets 2022 2021 S 70 $ 55 275 300 Assets Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets 375 350 S 720 $ 705 2,000 1,490 $2,720 $2,195 S 150 85 Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities 75 50 120 145 $ 345 $ 280