Reference no: EM13649700

Two brothers, after a long career with a major department store chain, decide to retire from the chain and open their own stores. They each opened a single store in different parts of the state within their first year after retirement, two more stores the following year, and then each purchased a small competing chain the third year.

At the start of the fourth year, both brothers approached a loan officer at a major bank in order to extend their credit limit. The banker requested both brothers to submit audited financial reports from a CPA firm. After reading the reports, the banker was surprised to find that both brothers had nearly identical total sales and gross margins, but that one of the brothers was much more profitable. He was concerned as to why one brother's operating expenses were so high in comparison to his brother. What would you tell the banker to look for?