Seasonality can distort financial ratios. Which of the following is true about this effect?

• A. Seasonal factors may distort ratios.
• B. Inflation never distorts ratios.
• C. Ratios are always stable over time.
• D. Industry averages always reflect the organization's mix.

Answer: (A)

Seasonality affects the timing and level of revenues and expenses, so ratios that are compared across periods can be distorted even when underlying performance is steady. In healthcare, patient volume and demand often vary by season (for example, winter months can bring more respiratory illnesses and hospital admissions), which changes both revenue and costs in a given period. If you compare a quarter or month to another without adjusting for these seasonal patterns, you may misinterpret the true performance. That’s why the correct statement is that seasonal factors may distort ratios. The other options aren’t true: inflation can distort ratios, so saying it never distorts is incorrect; ratios aren’t always stable over time due to seasonal and other fluctuations; and industry averages don’t always reflect an organization’s exact mix, so they can be misleading if used without adjustment.