Question

A fire 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 find 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)?

a. 21.6%.
b. 25.8%.
c. 13.8%.
d. 18.0%.
e. 19.2%.

Answer 1

d. 18.0%

Step-by-step explanation:

Calculation to determine what was Carter's return on equity (ROE)?

First step is to calculate the Net income

Net income = sales * profit margin

Net income= 4 million * 5.4%

Net income= 216000

Second step is calculate the Equity

Equity = total assets - debt

Equity= 2000000 - 800000

Equity= 1200000

Now let determine the ROE

ROE = Net income/Equity

ROE= 216000/1200000

ROE= 18%

Therefore Carter's return on equity (ROE) is 18%