This year Andrews achieved an ROE of 11.2%. Suppose next year the profit margin (Net Income/Sales) decreases.

This year Andrews achieved an ROE of 11.2%. Suppose next year the
profit margin (Net Income/Sales) decreases. Assuming sales, assets and financial leverage remain the same next year, what effect would you expect this action to have on Andrews’s ROE?
Select: 1
Andrews ROE will remain the same.
Andrews ROE will decrease.
Andrews ROE will increase.

The answer is Andrews ROE will increase.