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Chp 4 assignmeht Q.9 An analysis of company performance using DuPont analysis sheaf of papers in his hand, your friend and colleague, Jason, steps into
Chp 4 assignmeht Q.9
An analysis of company performance using DuPont analysis sheaf of papers in his hand, your friend and colleague, Jason, steps into your office and asked the following. JASON: Do you have 10 or 15 minutes that you can spare? You: Sure, I've got a meeting in an hour, but I don't want to start something new and then be interrupted by the meeting, so how can I help? JASON: I've been reviewing the company's financial statements and looking for ways to improve our performance, in general; and the company's return on equity, or RoE, in particular, Anja, my new team leader, suggested that 1 start by using a Dupont analysis, and I'd like to run my numbers and conclusions by you to see whether I've missed anything. Here are the balance sheet and income statement data that Anja gave me, and here are my notes with my calculations. Could you start by making sure that my numbers are correct? Vou: Give me a minute to look at these financial statements and to remember what 1 know about the Dupont analysis. If 1 remeriber correctly, the DuPont equation breaks down our ROE into three component ration; the the total asset. turnovec rato, 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 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. JASON: Ok, it locks like twe got a couple of incorrect values, so show me your calculations, and then we can tak strategies for JASON: 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: Tve 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 apiswers up to two decimats. Hydra Cosmetics Inc. DuPont Analysis JASON: 1 see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Anja would have been very disappointed in me if 1 had showed her my original work. 50, now fet's switch topics and identify general strategies that could be used to positively affect Hydra's ROE. You: OK, so given your knowedge of the component ratios used in the Dupont equation, which of the following strategies should impoove the company's ROE? check all that apolyi Increase the afficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total Check all that apply. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total assets turnover. Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio. Reduce the combany'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 maroin. Use more equity financing in its capital structure, which will increase the equity multiplief. 3ASON: 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 Step by Step Solution
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