Question

A fire destroyed a large percentage of the financial records of a 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. The sales were $4 million on total assets of $2 million and the debt financing was $800,000. Using the Du Pont equation, what was the organization's return on equity?

Answer 1

18.0

Step-by-step explanation:

Net income = profit margin * sales = 5.4% * 4 million = 0.216 million

Equity = total assets - debt = 2 million - 800,000 = 1.2 million

ROE = net income / equity = 0.216 / 1.2 = 18%

So answer is 18.0%