rickyview6466 rickyview6466

06-11-2019
Social Studies

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This year Andrews achieved an ROE of 4.7%. 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?

Respuesta :

aristeus aristeus

06-11-2019

Answer:

ROE will decreases

Explanation:

We know that ROE is given by

ROE = Profit Margin (Profit/Sales) ×Total Asset Turnover (Sales/Assets) ×Equity Multiplier (Assets/Equity)

It is given that total Asset Turnover (Sales/Assets) decline keeping other things constant

As the ROE is directly related to the total asset turnover so ROE will also decreases

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