a)The rate earned on total assets adds interest expense to the net income, which is divided by average total assets. It measures the profitability of total assets, without regard for how the assets are financed. The rate earned on stock-holders' equity divides net income by average total stockholders' equity. It measures the profitability of the stockholders' investment.

b)The rate earned on stockholders' equity is normally higher than the rate earned on total assets. This is because of leverage, which compensates stockholders for the higher risk of their investments.