This year Baldwin achieved an ROE of 5.2%. Suppose next year the profit margin (

Question

This year Baldwin achieved an ROE of 5.2%. Suppose next year the profit margin (Net Income/Sales) increases. Assuming sales, assets and financial leverage remain the same next year, what effect would you expect this action to have on Baldwin's ROE? Select: 1 Baldwin ROE will remain the same. Baldwin ROE will increase. Baldwin ROE will decrease. This year Baldwin achieved an ROE of 5.2%. Suppose next year the profit margin (Net Income/Sales) increases. Assuming sales, assets and financial leverage remain the same next year, what effect would you expect this action to have on Baldwin's ROE? Select: 1 Baldwin ROE will remain the same. Baldwin ROE will increase. Baldwin ROE will decrease.

Explanation / Answer

Baldwin ROE will increase due to increase in profit margin Option 2 is correct

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