This year Andrews achieved an ROE of 3.2%. Suppose management takes measures that decrease Asset turnover (Sales/Total Assets) next year. Assuming Sales, Profits, and financial leverage remain the same, what effect would you expect this action to have on Andrews’s ROE? Select: 1 Andrews ROE will decrease Andrews ROE will increase Andrews ROE will remain the same These are Comp-xm questions in Capsim.com
Andrews ROE will remain the same
Explanation to the above answer:
We have been provided with the information in the question that, Sales, Profits, and financial leverage remain the same. Now if we check the formulla of ROE it is
ROE= Net Income / Share holders equity
If sales , Profits, and financial leverage remain the same then net income will be the same so in case of Assets level decreases it does not affect the ROE and net income does not change then ROE will also not change so from the above given statements Andrews ROE will remain the same is true.
