REVIEW QUESTIONS 1. Exhibit 7.15 presents the income statement and balance sheet for Companies A, B, and C. Compute each company's return on assets, return on equity, and return on invested capital. Based on the three ratios, which company has the best operating performance? 2. Why does the return on assets differ between Company A and Company B? Why do companies with equity investments tend to have a lower return on assets than companies with only core operations? 3. 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 Company B 100 Company C 100 Operating profit Eamings before taxes Taxes 100 100 80 25 Net income 75 Balance sheet 125 125 400 Property and equipment Equity investments Total assets 50 525 50 Accounts payable Debt Equity Liabilities and equity 475 525 575