Question

The following information was drawn from the Year 5 balance sheets of two companies:
 

Company Assets = Liabilities + Common Stock + Retained Earnings
Butler 420,000 = 105,000 + 200,000 + 115,000
Lynch 600,000 = 240,000 + 100,000 + 260,000
 


During Year 5, Butler's net income was $25,200, while Lynch's net income was $43,200.
 
Required
a. Compute the return-on-equity ratio to measure the level of financial risk of both companies

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