Ch 04: Assignment - Analysis of Financial Statements Attempts: Keep the Highest: / 4 8. The DuPont equation Aa Aa Corporate decision makers and analysts often use a particular technique, called a DuPont analysis, to better understand the factors that drive a company's financial performance, as reflected by its return on equity (ROE). By using the DuPont equation, which disaggregates the ROE into three components, analysts can see why a company's ROE may have changed for better or worse and identify particular company strengths and weaknesses 00 The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identify and analyze three important factors that drive a company's ROE. According to the equation, which of the following factors directly affect a company's ROE? Check all that apply. Price per Share / Earnings per Share Net Income / Sales Sales/Total Assets 2 8 Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROC can be calculated simply by dividing a firm's net income by the firm's shareholder's equity, and it can be subdivided into the key factors that drive the ROB. Investors and analysts focus on these drivers to develop a dearer picture of what is happening within a company. An analyst gathered the following data and calculated the various terms of the Dupont equation for three companies ROE Company A 12.0% Company a 15.59 Company C21.54 Profit Margin * Total Assets Turnover Equity Multiplier 57.39 9.8 2.14 58.29 10.2 2.61 5109 10,3 3.60 Referring to these data, which of the following condusions will be true about the companies' ROES? The main driver of Company C's superior RDE, as compared with that of Company As and Company BS ROE, operational efficiency. The main driver of Company A's interior ROE, as cornpared with that of Company C'S ROE, is higher total asset turnover ratio The main driver of Company c's superior Roe, os compared with that of Company A's and Company BY ROE, I its greater use of debt financing Save & Continue