Fredrica Brown has $200,000 that she plans to invest in growth stocks. She has narrowed her choices to two companies in the same industry, White Inc. and Adam Inc.
Each company has a documented history of growth and an established, strong position within the industry. Last year, each company reported net income of $10 million and a return on owners’ investment of 17%; however, White reported EPS of $1.32, and Adam reported EPS of $2.75.
Fredrica requests that you explain why the EPS differs when other measures of activity and profitability are similar. What factors contribute to and limit the comparability of these data?