PASTPAPERS (ShortQuestions)

2014

Q # 01:

write down name of any three activity ratios:

Ans
Three activity ratios area:
1. Inventory turnover ratio.
2. Accounts receivable turnover ratio
3. Total asset turnover ratio

Q # 02:
define liquidity ratio:

Ans
Liquidity ratio measures a company’s ability to meet its short-term obligations using its liquid
assets. It’s typically represented by the current ratio or the quick ratio.

Q # 03:
If current assets are of 500000 and current liability of 350000 find out working capital.

Ans
Working capital is calculated by subtracting current liabilities from current assets:
Working Capital = Current Assets - Current Liabilities
Therefore, in this case, Working Capital = 500,000 - 350,000 = 150,000.

Q # 04:
Write down the formula of calculate earnings per share(EPS):

Ans
Formula for calculating Earnings Per Share (EPS):

Q # 05:
what is trend Analysis:

Ans
Trend analysis involves the analysis of data over a period of time to identify any consistent
results or trends. It helps in understanding the direction in which a particular variable is
moving.

Q # 06:
define going concern concept:
 Ans
Going concern concept suggests that a business entity will continue its operations in the
foreseeable future without any intention or necessity of liquidation, cessation of operations,
or significant curtailment of activities.

Q # 07:
what is operating ratio give its formula also:

Ans
Operating ratio measures a company’s operating expenses as a percentage of its net sales.
The formula for the operating ratio is:

Q # 08:
what are the objective of Financial Analysis:

Ans
Objectives of Financial Analysis include:
a. Assessing the financial health and performance of a company.
b. Facilitating decision-making for investors, creditors, and management.
c. Identifying areas of strength and weakness within the organization.
d. Forecasting future financial performance.
e. Comparing the company’s performance with industry standards and competitors.

Q # 09:
what are the limitations of ratios analysis: ?

Ans
Limitations of ratio analysis include:
 Historical data: Ratios are based on past financial information and may not reflect currentor
future conditions.
 Different accounting policies: Companies may use different accounting methods, making it
difficult to compare ratios across companies.
 Lack of qualitative factors: Ratios do not consider qualitative aspects such as management
quality, market conditions, or technological changes.
 Manipulation: Ratios can be manipulated through creative accounting practices.
 Industry differences: Ratios may not be comparable across industries due to variations in
business models and operating environments.

Q # 10:
what is matching concept

Ans
Matching concept is an accounting principle that suggests expenses should be matched with
the revenues they help to generate in the same accounting period. This principle ensures
that financial statements accurately reflect the profitability of a business during a specific
period.
 2015

Q # 01:
what is an Interim report ?

Ans
An interim report is a financial report issued by a company for a period shorter than a fiscal
year. It provides stakeholders with an update on the company’s financial performance and
position between its regular annual financial reports.

Q # 02:
define accrual basis of accounting:

Ans
Accrual basis of accounting recognizes revenue and expenses when they are incurred,
regardless of when cash is exchanged. It aims to match revenues with expenses in the period
in which they are earned or incurred, ensuring a more accurate representation of a
company’s financial position.

Q # 03:
If working capital is 15000 and liabilities are of 500000, find current asset:

Ans
To find current assets when working capital is Rs. 15,000 and liabilities are Rs. 500,000:
Current Assets = Working Capital + Current Liabilities
Therefore, Current Assets = 15,000 + 500,000 = Rs. 515,000.

Q # 04:
write down the formula to calculate payout ratio:

Ans
Formula for calculating payout ratio:

Q # 05:
what is trend analysis: (Repeat)

Q # 06:
define full disclosure concept

Ans
The full disclosure concept in accounting requires that all material information relevant to
the financial statements is disclosed to users.

Q # 07: Differentiate between financial leverage and operating leverage:

Ans
 Financial leverage refers to the use of debt to finance operations and investments,
which canmagnify returns but also increase risk.
 Operating leverage, on the other hand, refers to the extent to which fixed costs are
used in acompany’s operations.
Financial leverage deals with the use of debt, while operating leverage deals with the mix of
fixed and variable costs in a company’s operations.

Q # 08:
what are the objective of financial analysis: (Repeat)

Q # 09:
differentiate between vertical analysis and horizontal analysis

Ans
Vertical analysis involves comparing each line item on a financial statement to a base item
within the same statement, typically expressing each line item as a percentage of the base
item. Horizontal analysis involves comparing financial data over multiple periods to identify
trends or changes over time.

Q # 10:
write down the name of any three activity ratios: (Repeat)

2016
Q # 01:
define the note on financial statement

Ans
A note on financial statements, also known as footnotes, provides additional information or
explanations about items presented on the financial statements. It offers clarification on
accounting policies, assumptions, contingencies, and other relevant details that can’t be
adequately conveyed within the main body of the financial statements.

Q # 02:
define financial leverage

Ans
Financial leverage refers to the use of debt or borrowed capital to increase the potential
return on investment. It involves using borrowed funds to magnify the returns to equity
holders. While it can amplify gains, it also increases the risk of losses.

Q # 03:
define capital adequacy ratio

Ans
Capital adequacy ratio is a measure of a bank’s capital in relation to its risk-weighted assets.
It assesses a bank’s ability to absorb potential losses from its risk exposures. It’s often used
to ensure that banks have enough capital to support their operations and cover potential
losses.

Q # 04:
write down the formula of calculate earnings per share: (Repeat)

Q # 05:
what is trend analysis: (Repeat)

Q # 06:
define consolidated financial statement:

Ans
Consolidated financial statements combine the financial results of a parent company and its
subsidiaries into a single set of financial statements. This is done to present a comprehensive
view of the financial position and performance of the entire group, rather than individual
entities.

Q # 07:
what is inventory turnover ratio, give its formula:

Ans
Inventory turnover ratio measures how efficiently a company manages its inventory by
comparing the cost of goods sold to the average inventory during a specific period. The
formula for inventory turnover ratio is:

Q # 08:
define cash conversion cycle:

Ans
Cash conversion cycle (CCC) is a metric that measures the time it takes for a company to
convert its investments in inventory and other resources into cash flows from sales. It
includes the time taken to sell inventory, collect receivables, and pay suppliers. The formula
for CCC is:
CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Q # 09:
what is operating cycle:

Ans
Operating cycle is the time it takes for a company to convert its investments in inventory into
cash through the sale of products and the collection of receivables. It starts with the
purchase of inventory and ends with the collection of cash from customers.
 Q # 10:
what is stock holders report

Ans
A stockholder’s report, also known as a shareholder’s report, is a document issued by a
company to its shareholders, providing them with information about the company’s financial
performance, operations, and future prospects. It typically includes financial statements,
management discussions and analysis, and other relevant information aimed at keeping
shareholders informed about the company’s activity.

2017

Q # 1:
Annual report of a public company:

Ans
An annual report is a comprehensive report on a company's activities throughout the
preceding year. It includes the company's financial statements, a letter from the CEO, and an
overview of the company's operations.

Q#2
Horizontal analysis: (Same as 2015)

Q#3
Contribution margin ratio formula:

Q #4
Consolidated financial statements: (Same as 2016)

Q#5
Window dressing:

Ans
Window dressing is an accounting technique used to make a company's financial statements
appear better than they really are. It involves manipulating financial statements, usually at the
end of a reporting period, to present a more favorable picture of the company's financial
position and performance.

Q#6
Operating cycle: (Same as 2016)

Q#7
Price/Earnings Ratio:

Ans
The Price/Earnings (P/E) ratio is a financial metric used to evaluate a company's current share
price relative to its per-share earnings. It's one of the most widely used valuation metrics by
investors.
Here's how you calculate it:

Q#8
DuPont analysis:

Ans
DuPont analysis is a financial performance measurement technique that breaks down the
return on equity (ROE) into its component parts. It helps investors and analysts understand
the factors that contribute to changes in ROE over time.
The DuPont analysis is based on the formula:

Q#9
Notes to the financial statements: (Same as 2016)

Q # 10
Financial leverage: (Same as 2015)

2018

Q#1
Interim report of a public company: (Same as 2015)

Q#2
IFRS

Ans
IFRS stands for International Financial Reporting Standards. These are a set of accounting
standards developed by the International Accounting Standards Board (IASB).
IFRS provides a common global language for business affairs so that company accounts are
understandable and comparable across international boundaries.

Q#3
Accrual basis of accounting: (Same as 2015)

Q#4
Consolidated financial statements: (Same as 2016)

Q#5
Going concern concept: (Same as 2014)

Q#6
Operating cycle: (Same as 2016)

Q#7
Retention ratio:
Ans
The retention ratio, also known as the plowback ratio, is a financial metric that measures the
proportion of earnings retained by a company after paying out dividends to shareholders.
The formula to calculate the retention ratio is:

Q#8
Net working capital:

Ans
Net working capital (NWC) is a financial metric that measures the difference between a
company's current assets and its current liabilities. It represents the amount of liquid assets a
company has available to meet its short-term obligations.
The formula to calculate net working capital is

Q#9
Notes to the financial statements: (Same as 2016)

Q # 10
Financial leverage: (Same as 2015)

2019

Q#1
Interim report of a public company: (Same as 2015)

Q#2
Notes of financial statement:

Ans
Notes to the financial statements, often referred to simply as "notes," are additional
explanations and disclosures that a company's financial statements. They provide detailed
information about the figures presented in the financial statements and help users
understand the company's financial position, performance, and accounting practices.

Q#3
DuPont analysis: (Same as 2017)

Q#4
Difference between liquidity and solvency:

Ans
Liquidity and solvency are two key concepts in finance, especially when assessing the financial
health of a company. While both relate to a company's ability to meet its financial obligations,
they focus on different aspects of its financial position. Here's how they differ:
Liquidity:
Definition: Liquidity refers to the ability of a company to meet its short-term obligations with
its short-term assets.
Time Horizon: Liquidity focuses on the short term, typically within the next 12 months.
Measurement: It is measured by liquidity ratios such as the current ratio, quick ratio, and cash
ratio.
Objective: The main objective of liquidity management is to ensure that a company has
enough liquid assets to cover its short-term liabilities without experiencing financial distress.
Solvency:
Definition: Solvency refers to the ability of a company to meet its long-term obligations with
its long-term assets.
Time Horizon: Solvency focuses on the long term, typically beyond the next 12 months.
Measurement: It is measured by solvency ratios such as the debt-to-equity ratio, debt ratio,
and interest coverage ratio.
Objective: The main objective of solvency management is to ensure that a company has a
sustainable capital structure and can meet its long-term financial commitments without
risking insolvency.

Q#5
Importance of activity ratio:

Ans
Activity ratios, also known as efficiency ratios, measure how effectively a company manages
its resources to generate sales and cash flow. These ratios assess the efficiency with which a
company utilizes its assets to generate revenue. The importance of activity ratios lies in the
insights they provide into a company's operational efficiency, asset management, and overall
financial performance.

2020
Q#1
Trend analysis: (Same as 2014)

Q#2
Operating cycle: (Same as 2016)

Q#3
DuPont analysis: (Same as 2017)

Q #4
Window dressing: (Same as 2017)

Q#5
Retention ratio: (Same as 2018)

2022
Q#1

Ans
The debt ratio is a financial ratio that measures the proportion of a company's assets financed
with debt. It provides insight into the company's leverage and its ability to cover its debt
obligations.
The formula to calculate the debt ratio is:
Q#2
Price/Earnings ratio: (Same as 2017)

Q#3
Liquidity:

Ans
Liquidity is a measure of a company's ability to meet its short-term financial obligations using
its short-term assets. It indicates the ease with which a company can convert its assets into
cash without causing a significant loss in value.

Q#4
Uses of activity ratios: (Same as 2019)

Q#5
Indirect method of Cash Flow Statements:

Ans
The indirect method of preparing the Cash Flow Statement starts with the company's net
income and adjusts it for non-cash items and changes in working capital to arrive at the net
cash provided by operating activities.

Q#6
Structural analysis:

Ans
Structural analysis is a financial analysis technique used to examine a company's financial
statements by breaking down its financial data into components. This technique involves
dissecting financial statements to identify trends, patterns, and relationships within the data.

Q#7
Forecasting with limited quantitative data:

Ans
Forecasting with limited quantitative data refers to the process of predicting future trends,
outcomes, or events using a small or insufficient amount of numerical information. In many
cases, businesses may not have access to extensive historical data or may operate in
industries where data availability is limited. Despite this limitation, forecasting with limited
quantitative data is still possible, although it requires a different approach compared to
forecasting with abundant data.

Q#8
Methods for forecasting:

Ans
Forecasting is the process of making predictions about future trends, events, or outcomes
based on historical data, expert judgment, and other relevant information. There are several
methods for forecasting, each suitable for different types of data and situations. Here are
some commonly used methods for forecasting:
 Time Series Analysis
 Regression Analysis:
 Machine Learning Techniques:
 Qualitative Methods:
 Econometric Models:
 Forecasting with Limited Data

Q#9
Critique of stock statement:

Ans
The statement doesn't provide enough information to evaluate whether 10% is a good return
on investment without knowing the time period over which the return was earned and the
prevailing interest rates or returns in the market during that time.

Q # 10
Effect of wrong inventory valuation

Ans
Wrong inventory valuation can distort a company's profit and loss statement, affecting the
calculation of cost of goods sold and gross profit. This distortion can impact the company's
financial statements for two consecutive periods.

Q # 11
Basic EPS vs. Diluted EPS:

Ans
 Basic EPS is calculated by dividing the net income available to common shareholders
by the weighted average number of common shares outstanding during the period.
 Diluted EPS takes into account all potentially dilutive securities such as stock options,
convertible bonds, or convertible preferred stock.

Q # 12
Components of stockholder's equity:

Ans
 Common stock
 Preferred stock
 Additional paid-in capital
 Retained earnings
 Treasury stock

Q # 13
Nature and importance of financial statements:

Ans
 Financial statements provide information about a company's financial performance,
financial position, and cash flows.
 They are important for making investment decisions, assessing a company's financial
health, and providing transparency to stakeholders.
Q # 14
Investing activities

Ans
Investing activities are one of the three main categories of cash flows reported in the
statement of cash flows. These activities involve the purchase, sale, or investment in long-
term assets or securities that are not considered part of the company's normal operations.

Q # 15
Equity multiplier

Ans
The equity multiplier is a financial ratio that measures the proportion of a company's assets
financed by shareholders' equity. It indicates the degree of financial leverage used by the
company.
The formula to calculate the equity multiplier is: