Balance Sheet Data Income Statement Data Cash $1,300,000 Accounts payable $1,560,000 Sales $26,000,000 Accounts receivable 2,600,000 Accruals 520,000 13,000,000 Cost of goods sold Gross profit Inventory 3,900,000 Notes payable 2,080,000 13,000,000 Current assets 7,800,000 Current liabilities 4,160,000 Operating expenses 6,500,000 Long-term debt 6,760,000 EBIT 6,500,000 Total liabilities 10,920,000 Interest expense 1,060,800 Common stock 1,170,000 EBT 5,439,200 Net fixed assets 7,800,000 Retained earnings 3,510,000 Taxes 1,359,800 4,680,000 Net income $4,079,400 Total equity Total debt and equity Total assets $15,600,000 $15,600,000 the total asset If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover 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. Ratios Value Correct/Incorrect Ratios Value Correct/Incorrect Asset management ratio 50.00 Total assets turnover 1.67 Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) 20.92 26.15 Financial ratios 62.45 Equity multiplier 1.43 Correct Incorrect MADISON: 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: Calculation Value Numerator 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 = MADISON: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Xavier would have been very disappointed in me if I had showed him my original work. So, now switch topics and identify general strategies that could used 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. Use more equity financing in its capital structure, which will increase the equity multiplier. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover. Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin