Balance Sheet Data Income Statement Data $1,200,000 Sales $20,000,000 Cash $1,000,000 Accounts receivable 2,000,000 Inventory 3,000,000 Current assets 6,000,000 Accounts payable Accruals Notes payable Current liabilities 400,000 1,600,000 3,200,000 Cost of goods sold Gross profit Operating expenses 12,000,000 8,000,000 5,000,000 3,000,000 732,000 2,268,000 EBIT Long-term debt Total liabilities 4,500,000 7,700,000 Interest expense Common stock 1,575,000 EBT Net fixed assets 8,000,000 Retained earnings 793,800 4,725,000 6,300,000 $14,000,000 Taxes Net Income Total equity Total debt and equity $1,474,200 Total assets $14,000,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the net profit margin-, the total asset turnover ratio, and the equity multiplier gross profit margin , And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratil net profit margin 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 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 Ratios Value Correct/Incorrect Asset management ratio Total assets turnover 40.00 1.43 Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) ) Return on equity (%) 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, 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. Hydra Cosmetics Inc. DuPont Analysis Ratios Calculation Value Numerator Denominator Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Asset management ratio Total assets turnover Financial ratios IIII I I 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 Hydra'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. Reduce the company's operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will increase the company's net profit margin. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover. Use more equity financing in its capital structure, which will increase the equity multiplier