8. The DuPont equation 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 refiected by its return on equity (ROE). By using the DuPont equation, which disaggregates the ROE inte three components, analysts can see why a company's ROE may have changed for better or worse and identify particular company strengths and weaknesses, The Dupont Equation A DuPont anslysis is conducted using the Dupont equation, which helps to identify and analyze three important factors that drive a company's ROE. Complete the following equations, which are needed to conduct a DuPont analysis: 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: Refernng 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 A's inferior ROE, as compared with that of Company C's ROE, is its higher total asset turnover ratio. 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.
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8- The DuPont equation Corporate decision makers and analysts often us.docx
1. 8. The DuPont equation 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 refiected by its return on equity (ROE). By using the DuPont equation, which
disaggregates the ROE inte three components, analysts can see why a company's ROE may have
changed for better or worse and identify particular company strengths and weaknesses, The
Dupont Equation A DuPont anslysis is conducted using the Dupont equation, which helps to
identify and analyze three important factors that drive a company's ROE. Complete the following
equations, which are needed to conduct a DuPont analysis: 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:
Refernng 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 A's
inferior ROE, as compared with that of Company C's ROE, is its higher total asset turnover ratio.
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.
