1. When a balance sheet amount is related to an income statement amount in computing a ratio, a. The income statement amount should be converted to an average for the year. b. Comparisons with industry ratios are not meaningful. c. The balance sheet amount should be converted to an average for the year. d. The ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount. 2. How are financial ratios used in decision making? a. They can help identify the reasons for success and failure in business, but decision making requires information beyond the ratios. b. They remove the uncertainty of the business environment. c. They aren't useful because decision making is too complex. d. They give clear signals about the appropriate action to take. 3. A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do? a. Evaluate financial statements of companies within a given industry of approximately the same value. b. Determine which companies in the same industry are at approximately the same stage of development. c. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size. d. Ascertain the relative potential of companies of similar size in different industries