For a project viva on accounting ratios, you can expect both theoretical and practical

questions to assess your understanding of the topic. Here are some questions that might be
asked:

Basic Understanding of Accounting Ratios

1:What are accounting ratios? Why are they important?
A: Financial ratios offer entrepreneurs a way to evaluate their company's performance and
compare it other similar businesses in their industry. Ratios measure the relationship
between two or more components of financial statements. They are used most effectively
when results over several periods are compared.
2. Explain the concept of ratios used to analyze financial statements.
A: Ratio analysis compares a company's financial statement line items to evaluate its
performance. It helps to understand a company's profitability, liquidity, efficiency, and
solvency
3. How are accounting ratios categorized?
A: Liquidity ratios
 Measure a business's short-term solvency, or ability to meet its current obligations
 Current ratio and liquidity ratio are examples of liquidity ratios
Profitability ratios
 Measure the relationship between a business's operating profit and its sales or
investments
 Measure the rate of return on capital employed
Efficiency ratios
 Measure how well a business uses its resources
 Also known as activity ratios or turnover ratios
 Stock turnover, debtors turnover, and stock to working capital ratio are examples of
efficiency ratios
Other types of accounting ratios
 SOLVENVY ratios: Also known as solvency ratios, these ratios measure a business's
ability to meet its long-term debt obligations
 Debt-to-equity ratio: Measures a business's financial leverage, or how dependent it
is on borrowed money
 Debt ratio: Measures the ratio of liabilities to assets
  Interest coverage ratio: Measures a business's ability to pay its interest obligations

Describe categories like liquidity, profitability, efficiency, solvency, and market value ratios.

What is the significance of analyzing financial ratios for businesses?

A; Why is it important?
 Helps identify strengths and weaknesses: Ratio analysis can help businesses identify
areas for improvement and increase profitability.
 Helps compare to industry standards: Ratio analysis can help businesses compare
their performance to other companies in their industry.
 Helps identify trends: Ratio analysis can help businesses identify trends in their
financial performance over time.
 Helps identify opportunities: Ratio analysis can help businesses identify
opportunities for growth.
 Helps assess risk: Ratio analysis can help businesses assess their risk and manage it.
How is it used?
 Investors: Use ratios to make investment decisions, assess risk, and build a diversified
portfolio
 Bankers: Use ratios to make lending decisions about a business
 Business owners: Use ratios to understand their company's financial health and
make informed decisions
 Funders: Use ratios to measure a business's results against other organizations

Q;Explain how ratios help stakeholders in decision-making.

A: Ratio analysis compares line-item data from a company's financial statements to evaluate
it profitability, liquidity, efficiency, and solvency. Ratio analysis can track how a company is
performing over time or how it compares to another business in the same industry or sector.
Specific Ratios and Their Interpretation
Q:Can you explain how to calculate the current ratio and what it indicates?
A:Formula: Current Assets / Current Liabilities. It measures liquidity.
Q:What is the debt-equity ratio, and why is it important?
A:Formula: Total Debt / Shareholders’ Equity. It assesses financial leverage.
Q:How do you interpret a low return on equity (ROE)?
A: A low return on equity (ROE) indicates that a company is not using its shareholders'
money efficiently to generate profit. This could mean that the company is struggling with
losses, debt, or asset retention.
Discuss implications for profitability and shareholder returns.
Q:What does the gross profit ratio indicate?
A: Formula: (Gross Profit / Net Sales) × 100. It shows the efficiency of production.
The gross profit ratio (GP ratio) is a financial metric that indicates a company's profitability. It
shows the percentage of a company's total sales that is left over after subtracting the direct
costs of producing goods or services.
What does it indicate?
 Profitability: The GP ratio shows how much profit a company makes after deducting
the direct costs of production.
 Efficiency: The GP ratio shows how well a company uses its resources, such as raw
materials and labor.
 Financial health: The GP ratio shows how well a company is generating profits from
its operations.
 Pricing: The GP ratio shows whether a company's products are priced appropriately.
 Production costs: The GP ratio shows whether a company is controlling its
production costs
Application of Ratios
Q:Can you explain a situation where a high quick ratio might not be favorable?
A: A high quick ratio might not be favorable if a company is holding too much cash and not
using it efficiently. Instead, the company could be better off investing the cash to grow the
business
 A quick ratio of 1 or more means a company has enough liquid assets to cover its
short-term liabilities.
 A high quick ratio might indicate that a company is holding too much cash instead of
using it to invest in long-term opportunities.

Discuss scenarios like excess inventory accumulation.

A: Excess inventory accumulation happens when a business has more inventory than it can
sell. This can occur due to a number of factors, including poor forecasting, supply chain
disruptions, and product life cycle
How would you analyze the solvency of a company using accounting ratios?
A: To analyze a company's solvency using accounting ratios, you can calculate and compare
various solvency ratios. A higher solvency ratio is generally better, as it indicates a company's
financial strength.
Solvency ratio
 The solvency ratio is calculated by dividing a company's net income plus depreciation
by its total liabilities.
 A higher solvency ratio indicates a stronger financial position.
 A low solvency ratio may indicate potential future financial challenges.
Mention ratios like the debt ratio, interest coverage ratio, etc.
Q: What can cause fluctuations in the inventory turnover ratio?
A:Factors like seasonality, demand changes, or inventory management.
Practical Analysis
Based on the data in your project, which financial ratios showed positive trends?
Based on the data in my project-
Liquidity ratios :current ratio in the last two years imporved and is near ideal of 2:1, but
liquid ratio is declining – company may face challenges in short term obligation
Long term solvency ratios- debt : equity, total asset: debt, Proprietary ratio etc are all
improving
Activity ratios : all ratios are better in current year compared to the last 2 years
Profitability ratios are also improving- When we compare the ROI in 23-24 , it has
increased more than 3 times that of 22-23, and 10 times that of 21 -22. This indicates
a good improvement in profitability .

What conclusions did you draw from the profitability ratios of the company you studied?
All the profitability ratios are imprving
Discuss any observations related to net profit margin, ROA, ROE, etc.
How did you collect and analyze the data for your project?
I referred to the companies web site and in the section on investors I found all the balance
sheets of the company. I downloaded the pdf format of the consolidated balance sheets
from the annual reports of the comapny
Explain the sources and methodology used for calculating ratios.
Critical Thinking and Real-World Scenarios
How would a company improve its current ratio?
A company can improve its current ratio by increasing current assets or decreasing current
liabilities.
Increase current assets
 Increase sales: Increase sales to increase accounts receivable, which is a current
asset
 Collect receivables faster: Collect money owed to the company by customers faster
 Sell liquid assets: Sell assets that can be quickly converted to cash, like inventory or
marketable securities
Decrease current liabilities
 Pay off debts: Pay off short-term debt or accounts payable
 Renegotiate payment terms: Negotiate better terms with creditors
 Reduce personal draws: Reduce the amount of money the owner takes out of the
business
If a company has a high debt-equity ratio, what risks does it face?
A high debt-to-equity (D/E) ratio can indicate that a company is taking on too much debt,
which can make it more risky and less attractive to investors.
Risks
 Bankruptcy
A company with a high D/E ratio may be more likely to go bankrupt if its profits decline.
 Reduced profitability
A company with a high D/E ratio may have a harder time paying dividends to shareholders.
 Discouraged investors
Investors may be less likely to invest in a company with a high D/E ratio, which can make it
harder for the company to raise capital.
What limitations do accounting ratios have?
Accounting ratios can be limited in a number of ways, including:
Historical data: Ratios are based on past financial statements, which may not reflect current
market trends.
Inflation: Ratios don't account for inflation, which can distort the numbers.
Qualitative factors: Ratios only consider quantitative factors, like money, and don't consider
qualitative factors, like human elements.
Different formulas: Different companies may use different formulas for the same ratio.
Not a solution: Ratios are indicators of problems, but they don't provide solutions.
Not comparable: Ratios may not be comparable if different companies use different
accounting policies.
External factors: Ratios don't consider external factors, like a recession.
Aggregation issues: Ratios may not compare the same information over time if the
information was aggregated differently in the past.
Operational changes: Ratios may not compare the same information over time if the
business has changed accounting systems.
Can accounting ratios alone be used to judge a company’s performance? Why or why not?
No, accounting ratios alone are not enough to judge a company's performance. While
accounting ratios are important tools, they should be part of a broader financial analysis.
Explanation
Accounting ratios can be misleading if they are not interpreted correctly or in the right
context. For example, a ratio that looks good in one industry might not be as good in
another. A financial expert, like a CPA or financial advisor, can help you understand the
implications of the ratios and make informed decisions.
importance of considering other factors like market conditions, management decisions,
Technical and Calculation-Based Questions
Calculate the net profit margin given specific values for net income and sales.
Be prepared to do on-the-spot calculations.
Given a company's balance sheet, how would you determine its liquidity position?
Use relevant ratios like current ratio and quick ratio.
Explain how you would use ratio analysis to compare two companies in the same industry.
Discuss benchmarking and the importance of industry standards.
These questions are aimed at assessing your theoretical knowledge, analytical skills, and
practical understanding of accounting ratios and their application in real-world financial
analysis.
If your project involves analyzing the cash flow statements of a company for the past three
years, expect a range of questions during your viva that cover both theoretical aspects and
practical analysis. Here are some potential questions and topics you might encounter:

Understanding the Basics

What is a cash flow statement, and why is it important?
A cash flow statement is a financial report that shows a company's cash inflows and outflows
over a period of time. It's a key tool for understanding a company's financial health and
making informed business decisions.
Why is a cash flow statement important?
 Helps assess financial health
A cash flow statement shows how well a company generates cash to pay its bills and fund
operations.
 Helps identify cash shortfalls
A cash flow statement can help identify periods when a company has too much or too little
cash.
 Helps with long-term planning
A cash flow statement can help financial managers identify areas for improvement and plan
for the future.
 Helps with short-term planning
A cash flow statement can help with cash forecasting, which can help with short-term
planning.
 Helps with compliance
A cash flow statement may be required for financial reporting or public filings, especially if a
company has a loan.
What are the three sections of a cash flow statement?
Operating activities, investing activities, and financing activities.
How does the cash flow statement differ from the income statement and balance sheet?
Emphasize that while the income statement shows profitability, the cash flow statement
focuses on actual cash transactions.
Specific Analysis of Your Project
What trends did you observe in the cash flow statements over the past three years?
The dramatic rise in cash flow from operating activities from FY2022 to FY2024
indicates significant operational and financial improvements, suggesting
enhanced profitability, increased sales, and effective working capital
management.
The transition from positive cash flow in FY2022 to significant outflows in
FY2023 and FY2024 reflects the company's strategic focus on long-term
growth. While the rising cash outflows may raise liquidity concerns, these
investments could enhance financial performance in the future.
The steady increase in negative cash flow from financing activities indicates the
company's focus on reducing debt and returning capital to shareholders. While
this trend may improve financial health and reward shareholders, it could also
reduce cash reserves, limiting the company’s ability to fund new investments or
expansion without raising additional capital.
Can you highlight any significant changes in the cash flows of the company you studied?
Given above
Mention major acquisitions, capital expenditures, or changes in debt levels if applicable.
What conclusions did you draw from the cash flow analysis of the company?
Summarize whether the company has a strong cash flow position or if it’s facing liquidity
challenges.
How did the company's net cash flow change over the three-year period?
Discuss whether the company is generating positive or negative net cash flow overall.
Understanding the Components
What are some examples of cash flows from operating activities?
Cash receipts from sales, payments to suppliers, salaries, etc.
What are investing activities, and how do they affect cash flow?
Include purchases of fixed assets, investments, or proceeds from the sale of assets.
What are financing activities, and why are they significant?
Issuance of shares, raising loans, dividends paid, and their impact on the company’s financial
health.
Interpreting and Analyzing Cash Flows
Why is cash flow from operating activities considered more important than cash flow from
investing or financing activities?
Highlight its significance in evaluating a company’s core business performance.
If a company has a negative cash flow from investing activities, is that always a bad sign?
Explain how it could indicate growth due to investment in assets. No, negative cash flow
from investing activities is not always a bad sign. It can be a sign of poor management or it
can be a sign that the company is investing in its future.

What does it indicate if a company has positive cash flow from financing activities over
multiple years?
Positive cash flow from financing activities over multiple years indicates that a company is
bringing in more money than it's paying out. This can help a company expand, stay afloat,
and reinvest in itself.
Discuss the implications of raising funds through debt or equity consistently.
How would you interpret a company that shows increasing profits but negative cash flow
from operating activities?
Yes, a profitable company can have negative cash flow. Negative cash flow is not necessarily
a bad thing, as long as it's not chronic or long-term. A single quarter of negative cash flow
may mean an unusual expense or a delay in receipts for that period. Or, it could mean an
investment in the company's future growth . Also it can be due to high receivables or poor
cash management.
Technical and Calculation-Based Questions
Explain how to calculate free cash flow.
Formula: Operating Cash Flow - Capital Expenditures.
How would you assess a company’s liquidity using the cash flow statement?
A company's liquidity can be assessed using a cash flow statement by analyzing the cash
inflows and outflows over time. This analysis can help determine if the company has enough
cash to cover its short-term obligations.
Discuss the importance of cash flow from operations for short-term solvency.
The operating cash flow ratio is a measure of the number of times a company can pay off
current debts with cash generated within the same period. A high number, greater than one,
indicates that a company has generated more cash in a period than what is needed to pay
off its current liabilities.
Based on your project, can you compute the cash flow ratio or cash coverage ratio?
To calculate the cash flow coverage ratio (CFCR), you can use the formula:
Be prepared to do quick calculations if given data.
Critical Thinking and Real-World Scenarios
If a company shows continuous negative cash flows, what steps can it take to improve its
position?
Strategies like cost-cutting, increasing sales, or better working capital management. A
company can improve its cash flow by reducing expenses, improving cash flow forecasting,
and streamlining payments.
Reduce expenses Cut back on non-essential spending, Work with more affordable suppliers,
Negotiate better deals with suppliers, and Rethink operational expenses.

How can a positive cash flow from financing activities be a warning sign?
Continuous borrowing might indicate dependence on external financing. A positive cash
flow from financing activities can be a warning sign if a company is relying too much on debt
or equity to fund its operations. This can indicate that the company is not generating enough
earnings from its core business.
Why is cash flow analysis critical during an economic downturn?
Discuss the importance of liquidity and survival during tough economic times.
Data Collection and Methodology
How did you collect and analyze the data for your cash flow analysis project?
Explain sources like annual reports, financial databases, or company websites.
What challenges did you face while analyzing the cash flow statements?
Discuss any data inconsistencies, adjustments, or interpretation challenges.
Can you explain any adjustments you made while preparing your cash flow analysis?
Examples could include adjustments for non-cash items like depreciation or amortization.
These questions aim to test your theoretical knowledge, analytical skills, and practical
understanding of cash flow analysis, particularly related to your project.