Balance Sheet Data $1,000,000 Accounts payable Cash Accounts receivable Inventory 2,000,000 3,000,000 6,000,000 Current assets Accruals Notes payable Current liabilities Long-term debt Total liabilities Common stock Retained earnings Total equity Total debt and equity Income Statement Data $1,200,000 Sales $20,000,000 400,000 Cost of goods sold 10,000,000 1,600,000 Gross profit 10,000,000 3,200,000 Operating expenses 5,000,000 3,300,000 EBIT 5,000,000 6,500,000 | Interest expense 588,000 875,000 EBT 4,412,000 2,625,000 Taxes 1,544,200 3,500,000 Net income $2,867,800 $10,000,000 Net fixed assets 4,000,000 Total assets $10,000,000 If I remember correctly, the DuPont equation breaks down our return on equity (ROE) into three component ratios: the , the ratio, and the And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's , 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. calculation is incorrect. Check if Correct Value Value Cepeus Manufacturing Inc. DuPont Analysis Check if Correct Ratios Asset management ratio Total asset turnover 0 Financing ratios Equity multiplier Ratios Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) 2.00 50.00 22.06 28.68 88.33 1.54 0 Landon: 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: Cepeus Manufacturing Inc. DuPont Analysis Calculation Numerator Denominator Value Ratios Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Asset management ratio Total asset turnover Financing ratios Equity multiplier So, now let's switch topics and identify general strategies that could be used to positively affect Cepeus'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.) Use more equity financing in its capital structure, which will increase the equity multiplier. Use more debt financing in its capital structure and increase the equity multiplier. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total asset turnover. Decrease the amount of debt financing used by the company, which will decrease the total asset turnover ratio. Landon I think I understand now. Thanks for taking the time to go over this with me, and let me know when I can return the favor. Flash Player MAC 32,0,0,255 Balance Sheet Data $1,000,000 Accounts payable Cash Accounts receivable Inventory 2,000,000 3,000,000 6,000,000 Current assets Accruals Notes payable Current liabilities Long-term debt Total liabilities Common stock Retained earnings Total equity Total debt and equity Income Statement Data $1,200,000 Sales $20,000,000 400,000 Cost of goods sold 10,000,000 1,600,000 Gross profit 10,000,000 3,200,000 Operating expenses 5,000,000 3,300,000 EBIT 5,000,000 6,500,000 | Interest expense 588,000 875,000 EBT 4,412,000 2,625,000 Taxes 1,544,200 3,500,000 Net income $2,867,800 $10,000,000 Net fixed assets 4,000,000 Total assets $10,000,000 If I remember correctly, the DuPont equation breaks down our return on equity (ROE) into three component ratios: the , the ratio, and the And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's , 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. calculation is incorrect. Check if Correct Value Value Cepeus Manufacturing Inc. DuPont Analysis Check if Correct Ratios Asset management ratio Total asset turnover 0 Financing ratios Equity multiplier Ratios Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) 2.00 50.00 22.06 28.68 88.33 1.54 0 Landon: 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: Cepeus Manufacturing Inc. DuPont Analysis Calculation Numerator Denominator Value Ratios Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Asset management ratio Total asset turnover Financing ratios Equity multiplier So, now let's switch topics and identify general strategies that could be used to positively affect Cepeus'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.) Use more equity financing in its capital structure, which will increase the equity multiplier. Use more debt financing in its capital structure and increase the equity multiplier. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total asset turnover. Decrease the amount of debt financing used by the company, which will decrease the total asset turnover ratio. Landon I think I understand now. Thanks for taking the time to go over this with me, and let me know when I can return the favor. Flash Player MAC 32,0,0,255