1. Exhibit 9.18 presents the income statement and balance sheet for Companies A, B, and C. Compute each company’s return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC). Based on the three ratios, which company has the best operating performance?

EXHIBIT 9.18 Ratio Analysis: Consolidated Financial Statements

$ million Company A Company B Company C Income statement Operating profit 100 100 100 Interest 0 0 (20)

Earnings before taxes 100 100 80 Taxes (25) (25) (20)

Net income 75 75 60 Balance sheet Inventory 125 125 125 Property, plant, and equipment 400 400 400 Equity investments (cost method) 0 50 0 Total assets 525 575 525 Accounts payable 50 50 50 Debt 0 0 200 Equity 475 525 275 Liabilities and equity 525 575 525