Review the Consolidated Balance Sheets (page 41), and Note 17 Leases (page 72). As part of its incentive plan for senior executives, Sherwin-Williams pays a bonus for a metric called RONAE (Return on Net Assets Employed). The metric is defined as Net income divided by average net assets employed, which is the sum of net accounts receivable, total inventory, net fixed assets, total intangible assets and goodwill, less accounts payable. Given this incentive structure, would a bonus-maximizing manager prefer (1) operating leases or (2) capital leases? Explain.

Consolidated Balance Sheets December 31 Current assets: Cash and cash equivalents . . .. .. . Accounts receivable, less allowance-. Inventories: $ 889,793 S 205,744 $40,732 1,130,565 1,230,9871,114,275 Finished goods .. Work in process and raw 898,627 840,603 177,927 191,743 1,033,527 109,087 251,655 3,627,298 2,657,180 2,565,566 87,883 230,748 Other current assets 381,030 Total current assets 1,126,8921,143,333 255,010 Deferred pension assets Other assets Property, plant and equipment: 244,882 119,530 696,202 125,691 2,153,437 2,026,617 ,952,037 117,126 3,100,9332,923,431 2,005,045 1,881,569 1,814,230 1,095,888 ,041,862 1,021,030 Total Assets . Liabilities and Shareholders' Equity Current liabilities: $6,752,521 5,778,937 5,699,333 Short-term borrowin S 40,739 1,034,608 39,462 679,436 57,561 1,042,182 338,256 Accrued taxes Current portion of long-term debt... Other accruals 578,547 522,280 Total current liabilities 2,829,1792,141,859 2,680,666 1,115,996 277,892 1,211,326 Postretirement benefits other than pensions . .. . . . 248,523 Shareholders' equity Common stock $1.00 par value 93,013,031, 92,246,525, and 94,704,173 shares outstanding at December 31, 2016, 2015 and 2014, respectively 115,761 114,525 2,330,426 2,079,639 4,049,497 3,228,876 2,424,674 (4,235,832) 4,220,058) 3,150,410) Retained earnings Treasury stock, at cost .. Cumulative other comprehensive loss Total shareholders' equity Total Liabilities and Shareholders' Equity. . 1,878,441 867,910 996,470 $6,752,521 5,778,937 $5,699,333 See notes to consoidated financial staternents