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1) Return on investment will typically be lower than return on equity.
2) Dissimilar year ends will have no impact on the results of ratios.
3) The rating for an industrial revenue bond represents the probability of default by the
governmental unit.
4) Transactions must be external to the company.
5) Even an entity on a very profitable course will find itself bankrupt if it fails to meets
its obligations to short-term creditors.
6) Different accounting methods can cause some ratios to differ substantially.
7) Most of the ratios given a high significance rating by commercial loan officers have
a primary measure of liquidity or debt.
8) Net profit margin is net profit before noncontrolling share of earnings and
nonrecurring items to total assets.
9) Sale of equipment for cash is an operating activity.
10) For a bank, loans are not earning assets.
11) A sole proprietorship is a legal entity separate from its owner.
12) The company with the natural business year tends to overstate its accounts
receivable turnover, thus overstating its liquidity.
13) When the bond market interest rate is 6% and the bond contractual interest rate is
8%, the bond will sell at a premium.
