PLP Corporation began operations on January 1, 2014. The initial investment by the owners was $100,000. The following information was extracted from the company€™s records.

a. Compute the return on equity for each year. Has the company been effective at managing the capital provided by the equity owners?
b. Does the information about inventory and the cost of goods sold indicate any reason for the trend in return on equity? Support your answer with any relevant ratios.

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December 31 Shareholders' Equity December 31 Cost of Goods Sold Net Income Inventory $510,000 $100,000 $200,000 255,000 $1,200,000 2014 2015 490,000 290,000 1,350,000 1,395,000 315,000 2016 515,000 320,000 505,000 510,000 365,000 2017 1,400,000