You are a security analyst for Magneto Investments and have chosen to invest in one firm from the semiconductor manufacturing industry. You have narrowed your choice to either Owen-Foley Company or Amerton Industries, firms of similar size and direct competitors in the industry. The following information was taken from their 2011 annual reports.

REQUIRED:On the basis of this information, explain which of the two firms seems to have the stronger earning power.

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OWEN-FOLEY COMPANY 2011 2010 BALANCE SHEET S 18,400 $16,600 Deferred income tax liability INCOME STATEMENI Income before taxes $163,000 (52,000) S111,000 Income tax expense Net income Effective income tax rate: 36% AMERTON INDUSTRIES 2011 2010 BALANCE SHEET S 18,800 Deferred income tax liability S19,800 INCOME STATEMENT S158,500 (53,500) S105,000 Income before taxes Income tax expense Net income Effective income tax rate: 36%