If Carter Health System has a profit margin of 5.4% on sales of $4 million, what is its return on equity if it has total assets of $2 million and debt of $800,000?

To determine the return on equity (ROE), we first need to calculate the net income and equity for Carter Health System based on the given information.

The profit margin is defined as net income divided by sales. Since Carter Health System has a profit margin of 5.4% on sales of $4 million, we can calculate the net income as follows:

Net Income = Profit Margin × Sales

Net Income = 0.054 × $4,000,000

Net Income = $216,000

Next, we need to calculate the total equity. Total equity can be calculated using the balance sheet equation:

Total Assets = Total Liabilities + Equity

Given that total assets are $2 million and total debt (liabilities) is $800,000, we can rearrange the equation to find equity:

Equity = Total Assets - Total Liabilities

Equity = $2,000,000 - $800,000

Equity = $1,200,000

Now that we have both net income and equity, we can calculate the return on equity (ROE):

ROE = Net Income / Equity

ROE = $216,000 / $1,200,000

ROE = 0.18