The DuPont Equation DuPont analysis is conducted using the DuPont equation, which helps you analyze three important factors that drive a company's ROE. Complete the following equations, which are needed to conduct a DuPont analysis: ROE = Profit Margin Sales X Total Assets Turnover X X Company A 12.0% Company B 15.5% Company C 21.5% Total Assets X Most investors and analysts in the financial community observe the ROE closely. The ROE can be calculated simply by dividing net income by the shareholder's equity, and it can be subdivided into the key factors that drive the ROE. Investors and analysts focus on these drivers to develop a clearer picture of what is happening in a company. An analyst gathered the following data and calculated the various terms of the DuPont equation for three companies: Total Assets Total Common Equity ROE = Profit Margin x Total Assets Turnover x Equity Multiplier 9.8 10.2 10.3 57.3% 58.2% 58.0% 2.14 2.61 3.60 Referring to these data, which of the following conclusions will be true about the companies' ROES? The main driver of company A's inferior ROE, as compared to that of company C's ROE, is its higher total asset turnover ratio. The main driver of company A's inferior ROE, as compared to that of company B's and company C's ROE, is its use of higher debt financing. The main driver of company C's superior ROE, as compared to that of company A's and company B's ROE, is its greater use of debt financing.