Corporate decision makers and analysts often use a particular technique, called a DuPont analysis, to better understand the factors that drive a company's financial performance, as reflected by its return on equity (ROE). By using the DuPont equation, which disaggregates the ROE into three components, analysts can see why a company's ROE may have changed for better or worse and identity particular company strengths and weaknesses. The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identity and 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 Total Assets Turnover / Sales x / Total Assets Total Assets/Total Common Equity Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a firm's net Income by the firm's 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 within a company. An analyst gathered the following data and calculated the various terms of the DuPont equation for three companies: x X ROE Total Assets Turnover 9.8 Equity Multiplier 2.14 12.0% 2.61 Company A Company B Company C Profit Margin 57.3% 58.2% 58.0% 15.5% 10.2 10.3 3.60 21.596 Referring to these data, which of the following conclusions will be true about the companies' ROES? The main driver of Company C's superior ROE, as compared with that of Company A's and Company B'S ROE, is its greater use of debt financing CircuperAROE comodadaththatat.com and come ROE ROE Profit Margin x Total Assets Turnover / Total Assets / Sales X X Total Assets/Total Common Equity Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a firm's net income by the firm's 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 within a company. An analyst gathered the following data and calculated the various terms of the DuPont equation for three companies: ROE Profit Margin 57.3% Total Assets Turnover 9.8 Equity Multiplier 2.14 12.0% Company A Company B Company C 15.5% 58.2% 10.2 2.61 21.5% 58.0% 10.3 3.60 Referring to these data, which of the following conclusions will be true about the companies' ROES? The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, Is its greater use of debt financing The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's Roe, is its operational efficiency. The main driver of Company A's inferior ROE, as compared with that of Company B's and Company C's ROE, Is its use of higher debt financing Grade It Now Save & Continue Continue without saving