Tying the Ratios Together The DuPont eguation shows the relationships among asset management, debt management, and -Select-ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: ROE Profit margin Total assets turnover x Equity multiplier -Select- factors Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting number also need to be considered Qualitative Foreign Quantitative Problem: Rosnan Industries' 2014 and 2013 balance sheets and income statements are shown below Balance Sheets: 2014 2013 Cash and equivalents Accounts receivable $70 275 375 $720 2,000 $2,720 $55 300 350 $705 1,490 $2,195 Total current assets Net plant and equipment Total assets $150 75 120 $345 450 1,225 700 $2,720 $85 50 145 $280 290 1,225 400 $2,195 Accounts payable Accruals Notes payable Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity