You are presented with the opportunity to invest in two public companies, A & B.

Both have returned a Return on Equity of 33%.

The financial statements of both companies are presented below. As the financial statements show the market values some of the inherent deficiencies of RoE are eliminated.

Which of them would you prefer to invest in? Why?

State your reasoning clearly supporting your points with calculations.

\begin{tabular}{|l|r|r|} \hline ASSETS & \multicolumn{1}{|c|}{ Co. A } & \multicolumn{1}{c|}{ Co. B } \\ \hline Working Capital & 750 & 1.250 \\ \hline Fixed Assets & 1.500 & 2.500 \\ \hline Total Assets & 2.250 & 3.750 \\ \hline \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline Liabilities \& Equity & Co. A & \multicolumn{1}{c|}{ Co. B } \\ \hline Net Debt & 250 & 2.360 \\ \hline \end{tabular} \begin{tabular}{|c|r|r|} \hline Shareholders' Equity & 2.000 & 1.246 \\ \hline Paid in capital \& Retained Earnings & 1.340 & 835 \\ \hline Period's Profit/loss & 660 & 411 \\ \hline Total Liabilities \& SHE & 2.250 & 3.607 \\ \hline \hline \end{tabular} \begin{tabular}{|l|r||r|} \hline Income Statement & \multicolumn{1}{|c||}{ Co. A } & \multicolumn{1}{|c|}{ Co. B } \\ \hline Revenues & 2.000 & 2.000 \\ Cost of Sales & -1.000 & -1.100 \\ \hline Gross Profit & 1.000 & 900 \\ \hline General Sales \& Administrative & & \\ Expenses & -150 & -150 \\ \hline Operating Profit & 850 & 750 \\ \hline Interest & -25 & -236 \\ \hline Earning before Taxes & 825 & 514 \\ \hline Taxes & -165 & -103 \\ \hline Net Earning after tax & 660 & 411 \\ \hline \end{tabular}