why does the return on equity differ between Company A and company C? Is the difference attributable to operating performance? which better reflects operating performance, return on assets or return on equity? why?

**note assume that income statement is for current year and balance sheet is for the prior year, so that you can divide the current year net income by prior year equity to compute ROE.

A B C D E N EXHIBIT 9.18 Ratio Analysis: Consolidated Financial Statements w $ million UT Company A Company B Company C 7 Income statement 8 Operating profit 100 100 100 9 Interest 0 0 (20) 10 Earnings before taxes 100 100 80 11 12 Taxes (25) (25) (20) 13 Net income 75 75 60 14 15 Balance sheet 16 Inventory 125 125 125 17 Property, plant, and equipment 400 400 400 18 Equity investments (cost method) 0 50 0 19 Total assets 525 575 525 20 21 Accounts payable 50 50 50 22 Debt 0 0 200 23 Equity 475 525 275 24 Liabilities and equity 525 575 525 25 26 27 28 29 30 31 Exhibit Data: 32 Tax rate 25%