Could provide some assistance with the following question:
Last year Barden Homes and Fowler Construction earned $1 million in net income. Both companies have assets of $10 million. Barden generated a return on equity of 11.1%, whereas Fowler produced a return on equity of 20.0%. What can explain the differences in return on equity between the two companies?© BrainMass Inc. brainmass.com March 4, 2021, 6:25 pm ad1c9bdddf
The difference is on account of level of debt and equity. Both the companies have $10 million in assets. Therefore there will be $10 million on the liabilities side. The liabilities side is composed to debt ...
The solution explains the reason by return on equity may be different for two companies.