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 general 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 I start by using a DuPont analysis, and I'd like to run my numbers and conclusions by you, to see if 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? YOU: Give me a minute to look at these financial statements and to remember what I know about the DuPont analysis, Income Statement Data Sales Cash $1,800,000 600,000 Balance Sheet Data $1,500,000 3,000,000 4,500,000 9,000,000 Accounts receivable Inventory Current assets Accounts payable Accruals Notes payable Current liabilities 2,400,000 Cost of goods sold Gross profit Operating expenses EBIT 4,800,000 $30,000,000 15,000,000 15,000,000 7,500,000 7,500,000 1,098,000 6,402,000 2,240,700 Long-term debt Total liabilities 6,750,000 11,550,000 2,362,500 Interest expense EBT Common stock Retained earnings 7,087,500 Taxes Net fixed assets 12,000,000 $4,161,300 Total equity 9,450,000 Net income $21,000,000 Total debt and equity $21,000,000 Total assets Value Correct/Incorrect Value Correct/Incorrect Cepeus Manufacturing Inc. DuPont Analysis Ratios Profitability ratios Gross profit margin (9) Operating profit margin (9) Net profit margin (%) Return on equity (96) Ratios Asset management ratio Total assets turnover 50.00 1.43 21:34 19.82 Financial ratios Equity multiplier 51.58 1.82 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: I've just made rough calculations, so let me complete this table by inputting the components of each ratio and its value: Note: Do not round intermediate calculations for this part. Numerator Calculation Denominator Value Cepeus Manufacturing Inc.DuPont Analysis Ratios Profitability Ratios Gross profit margin (9) Operating profit margin (96) Net profit margin (9) Return on equity (%) Numerator Calculation Denominator Value Asset management ratio Total assets turnover Numerator Financial ratios Equity multiplier Denominator Value Calculation 7 JASON: I 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 I had her showed my original work. So, now let's switch topics and identify general strategies that could be used to positively affect cepeus'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 interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. Decrease the company's use of debt capital because it will decrease the equity multiplier. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin. Use more equity financing in its capital structure, which will increase the equity multiplier. E JASON: 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