Apex Engineering Ltd. wants to increase its Return on Equity (RO

Under the DuPont framework, a firm can increase its ROE by targeting one or more of its three underlying levers: 1. Lever 1 — Profitability (Net Profit Margin): Improve margins through cost reduction, pricing optimization, product mix enhancement, and eliminating operational waste. 2. Lever 2 — Efficiency (Asset Turnover Ratio): Generate higher revenue per rupee of assets by reducing inventory holding periods, optimizing working capital, and divesting underperforming fixed assets. 3. Lever 3 — Leverage (Equity Multiplier): Increase financial leverage prudently by using low-cost debt rather than fresh equity funding (subject to safe interest coverage limits) or buying back shares. The 3-Step DuPont Analysis provides management with a clear blueprint for corporate value creation: • Operating Performance: To boost the Net Profit Margin, the firm should streamline direct manufacturing costs and reduce operating expenses (Selling, General & Admin) • Asset Utilization: To improve Asset Turnover, the firm must accelerate its working capital cycle (shortening raw material and finished goods holding periods). • Capital Structure: The Equity Multiplier demonstrates that the firm uses 50% debt/liabilities and 50% equity financing. Modest, cost-effective debt leverage can amplify shareholder returns, provided the Return on Capital Employed exceeds the borrowing cost.