1. True or False: In ratio analysis, a single value has little meaning. Therefore analysts use trend and comparative analyses to help "interpret the numbers."

2. True or False: It is always quite easy to determine whether a given ratio value is "good" or "bad."

3. Suppose that two hospitals are identical in all ways except that Hospital N is relatively new while Hospital O is relatively old. Which of the following statements about a comparative financial statement analysis is most correct? (Hint: Think about the differences in the amount of net fixed assets carried on the balance sheet and the amount of depreciation expense reported on the income statement.)

Hospital N will have the higher total asset turnover.

None of the statements are correct.

Hospital N will have the higher fixed asset turnover.

Hospital N will report the higher net income.

Hospital N will have the lower gross fixed assets.

All of the statements are correct.

4. True or False: To create common size financial statements, all income statement items and balance sheet accounts are divided by total assets.

5. Which of the following statements about the limitations of financial condition analysis is most correct?

Seasonal factors can distort ratios.

All of the statements are correct.

None of the statements are correct.

Comparison with industry averages is difficult if the organization operates in several different lines of business.

Inflation effects can distort ratios.

6. Which of the following statements about financial statement analysis is correct?

It is relatively easy to interpret a ratio in the absence of comparative and trend data.

The current ratio measures liquidity.

Du Pont analysis is based on the fact that return on equity (ROE) can be expressed as the sum of three other ratios (Ratio 1 + Ratio 2 + Ratio 3).

None of the statements are correct.

7. True or False: The primary difference between financial statement analysis and operating analysis is that operating analysis does not use benchmarking while financial statement analysis does.

8. Which of the following statements about financial condition analysis is correct?

All of the statements are correct.

Financial condition analysis focuses on whether or not an organization has the financial capacity to accomplish its mission.

Financial condition analysis often results in a list of financial strengths and weaknesses.

Operating analysis uses operating data to explain financial condition.

Financial statement analysis uses data contained in an organization's financial statements to assess financial condition.

9. A fire has destroyed a large percentage of the financial records of the 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)? (Hint: Use the Du Pont equation to answer this question.)

25.8%

21.6%

18.0%

19.2%

13.8%