Problem 1. Profits might be compared to sales, assets, or stockholders' equity. Why are all three of these useful? Will trends in all three ratios always move in the same direction? Why or why not?
Problem 2. The Return on Assets for Smith Corporation has remained fairly stable at 15 percent, while the Return on Assets for Jones, Inc. has steadily increased from 10 percent to 18 percent over the past five years. Both companies have had the same net income. Which company has the better profitability? What additional information about the companies' assets would you want to have before making a final conclusion?