"Financial Report"：Financial Analysis Techniques

B is correct. Leverage is a component of the return on equity equation under the DuPont Analysis. If leverage decreases, so will return on equity. ROE = Tax burden × Interest burden × Earnings before interest and taxes margin × Total asset turnover × Leverage A is incorrect. The tax burden is one of the components of ROE in the 5-factor model: Tax burden = Net income/EBT = (EBT – Tax)/EBT = 1 – Tax/EBT = 1 – Effective tax rate A lower tax rate means the company keeps more of its pre-tax profits (and has a higher tax burden).

A lower tax rate increases net income and increases ROE: an increase in any of the 5 components increases ROE.

C is incorrect. Days of sales outstanding is a component of the asset turnover measure. All else equal, if days of sales outstanding decreased, total asset turnover would increase. If asset turnover increases, so will return on equity.

C is correct. Cash conversion cycle = DOH + DSO – Days of payables .

A is incorrect. This is the operating cycle; it forgot to subtract payables: 41.7 + 34.7 = 76.4.

B is incorrect. It subtracted days in receivable, added days payable outstanding: 41.7 – 34.7 + 38.2 = 45.2