OPTIONS TO CHOOSE FROM: equity multiplier ratio, return on assets ratio, return on equity ratio, total asset turnover, total assets, total dept, total equity, operating profit, sales, common equity, net income, net profit margin

8. The DuPont equation Aa Aa Corporate decision makers and analysts often use a technique called DuPont analysis to understand and assess the factors that drive a company's financial performance, as measured by its return on equity (ROE). Depending on the version used, the DuPont equation will deconstruct the firm's ROE, its best measure of financial performance, into two or three important factors, or drivers. DuPont analysis can be conducted using either the traditional DuPont equation or the extended DuPont equation. The traditional equation is constructed using two drivers, whereas the extended DuPont equation uses three variables to examine a firm's ROE performance. Complete the following sentences by entering the appropriate words or phrases. In the extended DuPont equation, a firm's ROE reflects (1) its use of debt financing, or leverage, as reflected by its (2) the efficiency with which it uses its assets, as measured by the its production costs and operating expenses, as summarized by its , and (3) its ability to generate sales and manage In contrast, in the traditional version of the equation, the firm's efficiency and profitability metrics are multiplied and summarized in a single measure, the financing decisions and its effectiveness and efficiency in g In this analysis, a company's financial performance is expected to result from both management's g profits using the firm's asset base