LANDON: Do you have 10 or 15 minutes that you can spare? You: Sure, I've got a meeting in an hour, but I dan't want to start something new and then be interrupted by the meeting, so how can 1 help? LANDON: 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. Amelia, 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 t've missed anything. Here are the balance sheet and income statement data that Amelia 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 DuPant analysis. f I remember correctly, the DuPont equation breaks down our return on equity (ROE) into three component ratios: the , the 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 use of debt versus equity financing , effectiveness in using the company's assets, and control over its expenses Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. In the following table, select whether each of the ratios is correct or incorrect. LANDON: 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: Ive 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. Cepeus Manufacturing Inc.DuPont Analysis LANDON: t see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Amelia would have been vecy 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 positwely affect Cepeus's RoE. Youi OK, so given vour knowiedge of the compenent ratios used in the DuPont equation, which of the following strategies should improve the compary's ROE? 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. Reduce the company'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 margin. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover. LANDON: 1 think 1 understand now. Thanks for taking the time to go over this with me, and let me know when 1 can return the favor
