In our discussion of financial statement ratio analysis, we highlighted 13 ratios commonly used to help interpret financial statement data. Although that may seem like a lot of ratios, our discussion just scratches the surface. For example, one of the most widely used sets of comparative data for hospitals (Almanac of Hospital and Operating Indicators, published annually by OptumInsight [formerly Ingenix]) provides data on more than 30 financial ratios. Without putting in too much work, you could probably compile a list of 50 financial ratios. Yet studies have shown that about 90 percent of the information contained in financial statements can be uncovered using 10 or so carefully selected ratios, while 20 ratios would glean just about all of the important financial condition information contained in a businesss financial statements.

How many ratios do you think are enough? Does it matter how the ratios are selected? Is there a cost to using more ratios than necessary? What is the disadvantage of generating too much data?