A friend has asked you to evaluate information about two companies in the same industry. Your friend wants to invest in one or the other, but not both. Both companies are publicly traded, started with $10 000 of cash, have been in operation for exactly one year, have paid the interest owing on their long-term debts to date, and have declared dividends of $1 per share.

The beginning balance sheets for the two companies at 1 January 2016 were as follows:

Your friend says, 'Alpha Company seems the better investment. Its return on assets is 24 percent, and Omega's is only 16 percent.'
Comment on your friend's observation and the relative performance of the companies. Also, give your friend some investment advice.

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Alpha Company Total assets Long-term debt Shareholders' equity 1900 ordinary shares issued) Total assets Net profit for 2016 $ 10000 1000 9000 10000 2 400 Omega Company Total assets Long-term debt Shareholders' equity (100 ordinary shares issued) Total assets Net profit for 2016 10000 9000 1000 10000 1600