Question

A fire has destroyed a large percentage of the financial records of Carter Health System. You have the task of piecing together information to prepare a financial report. You have found the profit margin to be 5.4 percent. If sales were $4 million on total assets of $2 million, and the amount of debt financing was $800,000, what was Carter's return on equity (ROE)

Answer 1

18%

Step-by-step explanation:

The computation of the return on equity is shown below:

Net income is

= profit margin × sales

= 5.4% × $4 million

= $0.216 million

Now

Equity = total assets - debt

= $2 million - $800,000

= $1.2 million

ANd, finally

ROE = net income ÷ equity

= 0.216 ÷ 1.2

= 18%