Why does the return on equity differ between Company A and Company C? Is this difference attributable to operating performance? Does return on assets best reflect operating performance? If not, which ratio does and why?

EXHIBIT 7.15 Ratio Analysis: Consolidated Financial Statements S million Company A 100 Company B 100 100 125) Company C 100 20) 80 Operating profit Interest Earnings before taxes 100 axeS Nat income 125) 75 20) 6O Balance sheet Inventory Property and equipment Equity investments Total assets. 125 400 125 400 50 575 125 525 Accounts payable Debt 50 50 50 525 575 475 Liabilities and equity EXHIBIT 7.16 HealthCo: Income Statement and Balance Sheet $ mil lion Income statement Balance sheet Prior year Current year Prior year Current year 665 Working cash 210 Accounts receivable 320) nventpries 45) Current assets Cost of sales Selling costs 15 20 B0 Oparating profit 65 Proparty. plant, and squipment Prepaid pension assas Interest expense Gain on sale Earnings before taxes 10 25 otal assets 100 Accounts payable 16) 40 Short-tem debt 20 20 Net income 0 Rastructuring reserves Current liabilities Long-term dabt Shareholders equity Liabilities and equity 70 70