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Income Statement Data $1,200,000 $20,000,000 12,000,000 400,000 1,600,000 3,200,000 Sales Cost of goods sold Gross profit Operating expenses EBIT 8,000,000 5,000,000 Balance Sheet Data Cash $1,000,000 Accounts payable Accounts receivable 2,000,000 Accruals Inventory 3,000,000 Notes payable Current assets 6,000,000 Current liabilities Long-term debt Total liabilities Common stock Net fixed assets 8,000.000 Retained earnings Total equity Total assets $14,000,000 Total debt and equity 4,500,000 3,000,000 7,700,000 1,575,000 Interest expense EBT Taxes 732,000 2,268,000 567.000 4.725,000 6,300,000 $14,000,000 Net income $1,701,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover ratio, and the the total asset And, according to my understanding of the DuPont equation and its calculation of ROE the three ratios provide insights into the company's effectiveness in using the company's assets, and Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I'm going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Hydra Cosmetics Inc. DuPont Analysis Value Correct/Incorrect 1.43 Ratios Profitability ratios Gross profit margin (0%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Value Correct/Incorrect Ratios Asset management ratio 40.00 Total assets turnover 11.34 12.15 Financial ratios 31.62 Equity multiplier 1.82 Ratios Calculation Value Numerator Denominator / / = Profitability ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on equity (%) Asset management ratio Total assets turnover Financial ratios / Equity multiplier CHLOE: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Eric would have been very disappointed in me if I had showed him my original work. So, now let's switch topics and identify general strategies that could be used to positively affect Hydra'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 Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio. 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. Use more debt financing in its capital structure and increase 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

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