Question

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.

1-Increase the firm’s bottom-line profitability for the same volume of sales, which will increase the company’s net profit margin.

2- Decrease the company’s use of debt capital because it will decrease the equity multiplier.

3-Reduce the company’s operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will increase the company’s net profit margin.

4- Use more equity financing in its capital structure, which will increase the equity multiplier.

Answer 1