[mediaman]

Many manufacturing companies can run on much higher debt levels, because much of the debt is collateralized by resellable equipment (good for the bankers) and because their revenues tend to have lower variance (good for the shareholders).

This magnifies returns on equity, which makes them more competitive with non-manufacturing companies, which typically cannot run on as high of debt levels because they don't have the same kind of collateral.

So typically you probably do have lower returns on invested capital (the entire capital base, debt plus equity) but returns on equity might be comparable. And if the manufacturing business is more stable -- which it often is, compared to most more ephemeral businesses with few assets -- lower returns are acceptable because there is lower risk.

Of course not all manufacturing companies are lower risk than all non-manufacturing companies.

[euroclydon]

That's interesting. Do businesses which can run on higher debt levels consequentially provide fewer opportunities for investment?