question archive This year Baldwin achieved an ROE of 1
This year Baldwin achieved an ROE of 1
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This year Baldwin achieved an ROE of 1.6%. Suppose management takes measures that increase 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 Baldwin's ROE?
A. Baldwin ROE will remain the same.
B. Baldwin ROE will decrease.
C. Baldwin ROE will increase.
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Answer:
A. Baldwin ROE will remain the same because the profits, leverage and sales will remain the same and Roe= net income /shareholders equity.Therefore if sales, financial leverage and profit remains the same it will mean that the net income will remain the same, This means that an increase in asset turnover will not affect Baldwin ROE.
