The following table contains DuPont equation component information for Western S
ID: 2735800 • Letter: T
Question
The following table contains DuPont equation component information for Western Sunset Camping Equipment and the camping equipment manufacturing industry average. Which of the following is a correct interpretation of this information?
a. Western Sunset is controlling costs better than the industry average.
b. Western Sunset is relying on debt funding more heavily than the average firm in the industry.
c. Western Sunset is using its assets more effectively than the industry on average.
d. Western Sunset has a lower return on equity than the industry average.
e. All of the above
Profit Margin Total Asset Turnover Equity Multiplier Western Sunset .12 1.21 1.95 Industry Average .13 1.37 1.45Explanation / Answer
A HIGH EQUITY MULTIPLIER DENOTES THAT THE COMPANY'S LARGE PORTION OF ASSET FINANCING IS BEING DONE THROUGH DEBT.
AS THE EQUITY MULTIPLIER OF WESTERN SUNSET IS MORE THAN THE INDUSTRY AVERAGE WESTERN SUNSET IS RELYING ON DEBT FUNDING MORE HEAVILY THAN THE AVERAGE FIRM IN THE INDUSTRY.
ANSWER OPTION B
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