Case Study: Ron's Jewelry Store and the DuPont Analysis SITUATION: Let's continue with our analysis of Ron's jewelry store, introduced in Learning by Doing Application 4.5. Brother-in-law Dennis has been asked to analyze the company's financials. He decides to use the DuPont system of analysis as a framework. He arranges the critical information as follows: Financial Ratios Ron's Store Competitor ROE 13.13% 13.14% ROA 3.75% 8.76% Net profit margin 2.50% Asset turnover Equity multiplier Debt-to-equity ratio 2.5 0.5 Net sales $240 $300 Net income $ 6.0 $ 17.5 Given the above financial ratios, what recommendations should Dennis make regarding Ron's jewelry store and its management? 1.5 3.5 5.84% 1.5 1.5 In summary, Ron's jewelry store is not well managed. Ron needs to either increase his net profit margin or increase his inventory turnover to bring his ROA into line with that of his major competitor. Ron may also need to reduce his dependence on financial leverage, but it makes sense to review interest coverage ratios before deciding whether he should do so. Solution