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9. The DuPont equation Aa Aa Corporate decision makers and analysts often use a particular technique, DuPont analysis, to better understand the factors that drive companty performance, as reflected in its return on equity (ROE). By using the DuPont equation, which disaggregates its ROE into three components, analysts can see why the companys ROE may have changed for better or worse and identify company strengths and weaknesses The DuPont Equatiorn DuPont analysis is conducted using the DuPont equation, which helps you analyze three important factors that drive a to the equation, which of the following factors affect a companys ROE directly? Check all that apply. companys ROE. According Net Income/ Sales Price per Share / Earnings per Share Sales/Total Assets Most investors and analysts in the financial community observe the ROE closely. The ROE can be calculated simply by dividing net income by the shareholders equity, and it can be subdivided into the key factors that drive the ROEl 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: ROE Profit Margin x Total Assets Turnover x Equity Multiplier Company A Company B Company C 12.0% 15.5% 21.5% 57.3% 58.2% 58.0% 9.8 10.2 10.3 2.14 2.61 3.60 erring to these data, which of the following conclusions will be true about the companies ROES? The main driver of company Cs superior ROE, as compared to that of company As and company Bs ROEs, is its greater use of debt financing The main driver of company Cs superior ROE, as compared to that of company As and company Bs ROEs, is its operational efficiency Th e main driver of company Cs superior ROE, as compared to that of company As and company Bs ROEs, is its efficient use of assets.

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Answer #1

1)ROE=(net income/sales)*(sales/assets)*(assets/equity)
so the answer is option a and c
2)option A is true as we can see Compnay C has higher ROE because of higher equity multiplier
Option B and option C incorrect as they are not that high for company C compared to company A and B

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