Mastering CCP Numericals | 5 Formulas You Must Know | IIBF Exam | By Aarti Pathak

[00:00:16]Hi everyone welcome to Ad 247 my name is C Aarti and I hope you all are doing well.

[00:00:23]So as you must have already come to know that till now your CCP exams are already scheduled and its registration has also already started.

[00:00:34]But when we prepare for CCP, numericals are also important for us. Now these are not very difficult numericals. There are small numericals.

[00:00:44]So today I will quickly discuss the top five numericals that you should know if you are going for CGCP exam.

[00:00:51]But before that if you have subscribed to our channel do it right now share this session with your friends and colleagues who are going to give CCP exam this time or in the month of July. So let us start today's session with the very first numerical topic that is current ratio. Now what is this current ratio? It tells us about the ability of our business to fulfill its short term obligations or not. Short term means whatever loan we have for less than 12 months, do we earn enough to repay this loan, this can be known with the help of current ratio. So the full amount is current assets divided by current liabilities. It swells very easily.

[00:01:40]Current assets means inventories, yes cash, then debtors, all these things whose life will be less than 12 months. Yes, all these will be called current assets. Current liabilities are your borrowings that are due less than 12 months.

[00:02:02]You took a loan for 6 months. You took a loan for 2 months. Had taken a loan for 6 months.

[00:02:07]Whatever overdraft was taken, it is covered in current liabilities. So what does this ratio tell us, whether we earn enough to meet our liabilities for the next one year, our obligations within 12 months, or not?

[00:02:27]Let's take an example and see quickly.

[00:02:29]Current assets are given as 500. Current liabilities are given as 250.

[00:02:35]What will be the current ratio? Current assets divided by current liabilities 500 / 250 so 500 / 250 when you do it it will come out to two times what does it mean? Meaning, whatever loans we have, we earn double that amount.

[00:02:55]We have double the money so that we can easily repay these liabilities. So first of all you should know this numerical.

[00:03:04]Let us now come to the second one. Quick Ratio. Quick Ratio or its other name is Asset Test Ratio which we know by another name Liquid Ratio. Now here we find out that suppose tomorrow suddenly an emergency arises in our business. So, in that emergency, do we have enough money to meet the obligations that will arise in that emergency or can we meet them or not. So this is about quick ratio. Quick ratio is said to measure immediate liquidity. Liquidity means how fast you convert it into cash. There was an emergency yesterday. Do you have money or not? Suppose there is a person A. Isn't it? Let us take an example here, Mr. A.

[00:03:54]He is travelling tomorrow. Ok?

[00:03:57]Suppose he was travelling, this is his bike.

[00:03:59]Ok? He was travelling by bike.

[00:04:02]Now he had an accident in between.

[00:04:05]Now when an accident happened, one of his legs got broken. Now if the leg is broken then I will have to go to the hospital.

[00:04:09]When they go to the hospital, do they have enough money to get their fracture treated? He has enough money in his bag or somewhere at home to get an X-ray done. We should have enough money so that if some emergency arises tomorrow, we do not face any problem here.

[00:04:31]Correct. We can use our money in case of emergency.

[00:04:34]So that's what quick ratio is. There is an asset test ratio formula, here current assets are not taken into account.

[00:04:43]Because if you see, inventory or one more thing is subtracted, that is prepaid expenses.

[00:04:52]See, inventory means stock. Isn't it? Now suppose you have a shop. Isn't it? Your business is furniture. There is a furniture business here. Ok? Now furniture you sell, buy, sell, buy. Ok? An emergency came up yesterday. If suddenly an emergency arises and you need ₹ lakh, what will you do? How will you be able to sell this? When there are no customers, will you be able to convert this inventory into cash? No. So this inventory will not be of any use to you.

[00:05:28]If there is an emergency tomorrow and the customer does not have the demand or requirement, then how will you convert?

[00:05:38]How will you convert inventory? In liquidity in cash. So that is why when we talk about quick ratio, we first subtract the inventory stock there.

[00:05:50]Also, look at the prepaid expenses like your mobile recharge. When do you recharge your mobile?

[00:06:00]Before using the services or after using the services? Of course if you run out of data today. Isn't it?

[00:06:10]You might have recharged this data sometime on March 1st.

[00:06:12]Today is 1st April and the data is over.

[00:06:16]Then if you want to use mobile data in April then you will have to recharge here.

[00:06:21]So what kind of expense is this? Prepaid.

[00:06:24]Spend it first, then you will reap its benefits. So should you assume from this that you recharged on April 1st? Isn't it?

[00:06:32]You had an emergency on April 10th. So will you switch to Jio now? Give money to Jio Jio.

[00:06:38]Emergency has arrived. Will go to Airtel.

[00:06:41]Airtel Airtel please give me the money.

[00:06:44]Emergency has arrived. Can you do this? No. Therefore inventories are deducted from current assets.

[00:06:51]Because unless the customer has demand, how will he buy it? And the second is prepaid expenses.

[00:07:00]Ok? And this is divided back by current liabilities. So what will happen to Phula? The quick ratio is 300 - 100 / 200 so the answer will be 300 - 100 / 200.

[00:07:19]Meaning, if we have as much liquid assets as the liabilities that we can see right now, we will be able to easily tackle them. So this is about asset quit ratio asset taste ratio. Ok? This is also a very important formula in the exam.

[00:07:37]This question is also asked. Let's come to another one that is debt equity ratio. This shows how much money the owner invested in our business and how much loan he took. Yes.

[00:07:50]What does Dept mean? Borod Funds.

[00:07:53]That is loan. What is this? Borod Funds. Ok? What does equity mean? Owners Fund. Let us take an example.

[00:08:02]Suppose here is Mr. W. Ok? Now he said that I will start a business where I will manufacture cars. Ok? Now a lot of money is required for car manufacturing.

[00:08:12]So Mr. W said, I am the owner of a car manufacturing company and I invest ₹100 lakh in my business.

[00:08:23]How much? ₹100 lakh. Ok? But to run this business of car manufacturing, at least a minimum investment has to be made here, let's say 300 lakhs, at least 300 lakhs will have to be made, but Mr. W has invested 100 lakhs, so from where will the rest of the money come, the remaining 200, he will now go to ask for a loan and where can one ask for a loan most easily, the bank, yes, so here if I ask how much money did the owner invest? You will say how much borrowing did you do for 100? 200 yes. So if I want to write this in a ratio, how would I write it here? That is debt equity.

[00:09:10]Meaning two, you have asked for a loan. It cost a penny.

[00:09:15]Ok? If you have invested one rupee, you are asked to borrow two rupees. There is double the debt. So how do you define this ratio ma'am? Total Dept Divided by Tazable Network. This is your equity.

[00:09:32]Yes equities means the money of the owners. So if I ask, what will be the day equity ratio here? So total days divided by total equity is 600 / 300 = 2, right? The ratio became 2:1. If we invest ₹1, we have taken a loan of double the amount. So we get to know this from the through day equity ratio.

[00:10:01]This is also an important ratio.

[00:10:03]After this, you will get another ratio.

[00:10:07]That is day service coverage ratio.

[00:10:11]DSCR ( Department Service Coverage Ratio) is very important if you work in a bank and you might have heard about it. Where we measure is the borrower's ability to service loan obligations. What do we do here?

[00:10:27]Here we check the ability of the borrowers to service obligations. How is it calculated here? DSCR is calculated as cash approvals divided by days served. Debt service means whatever amount of the total loan is required, whether you pay the interest or the principal.

[00:10:47]Both things will go into your day service.

[00:10:50]Debt means how much money will go into total borrowing? How much money will go into the total loan? If you go to take a loan today. Isn't it? Suppose you have taken a loan of Rs 5 lakh, then you will definitely return Rs 5 lakh and will also pay the principal amount plus interest. Yes and no, the bank will also ask for interest. So we add both these things by going to day service. Yes.

[00:11:12]So what will be its formula?

[00:11:15]If I may ask how much is the amount of pay day service here? So you see this example, the part given is depreciation or interest and capital. So the amount for day service will be 15 + 20, that is 35 lakhs. Ok? That is 35 lax. Now let us come to the second part. That is cash accruals. Cash accruals means how much cash you have. How much cash do you have? Ok? How much cash do you have in hand now? There is a formula to remove it. So this formula starts with how much stuff you sold. Isn't it? Your first variable expense in that is. Now the variable cost which is your raw material, yes you minus it.

[00:12:07]Whatever direct expenses there are, raw materials, labors, we minus what we call variable costs. Contribution comes out of this.

[00:12:18]When you subtract the variable cost from what you sold, you get contribution. Then comes the fixed cost to be minus. Fixed cost means that your expenses will remain the same, constant expenses, rent will always have to be paid, insurance will always have to be paid. When you subtract this, you get EBIT.

[00:12:40]This means that this is the earnings, this is the money that you have earned before paying interest on the loan and before paying taxes to the government. We call this EBIT. What do we call this? EBIT.

[00:12:59]Then you pay interest from this EBIT. We will reduce what you have paid as loan. Interest on loan. This gives you what is EBT, that is earnings before tax.

[00:13:21]What was the earning before paying the tax amount, which we also call PBT. PBT means Profit Before Tax. PBT means Profit Before Tax.

[00:13:33]What will happen now? The government will not sit quiet. Isn't it? If you have income then they will take the tax money. Then you have PA T or EAT, both have the same meaning. This is profit after tax. Yes, what is this? Profit after tax.

[00:13:56]Like this depreciation, it goes into fixed expenses. Ok? It goes into fixed expenses. Now, this profit which you paid tax to the government, you gave as loan. Ok? Now according to your book it is telling you that you should have ₹100 left in your hand. So is it true that you will have ₹100 left in your hand? No. Will this profit after tax become equal to cash? If you say yes then you are wrong. Why? Because to calculate the fact here, we had subtracted a non-cash expense here.

[00:14:36]Depreciation, this non-cash expense, you reduce it only in the books.

[00:14:46]This actually never gives outflow or inflow of money. This is an expense that you only show in your books.

[00:14:57]Ok? Where will you do the show? Only you show these in your books. Ok? So what do we call this? Non-cash expenses.

[00:15:05]What do we call this? Non-cash expenses. The government says that this depreciation is there, businessman, you should bear its expenses. Reduce your income with this.

[00:15:15]Because you have used the machine, you have used the building. You have used the equipment. So let's reduce our profits by taking an expense of depreciation, so that your tax is also reduced. But actually there was no cash outflow due to depreciation.

[00:15:35]So if I say how much cash I have in hand, then I will have to add back only the depreciation in this part.

[00:15:44]So what will happen? If you look at the parts in this question, it is 50. Depreciation is 20. So how much cash should I have in my hand? That Cash Is Going to Be 70. You will definitely see 50 in the books but I will have ₹70 in my hand. Ok? So how will you calculate DSCR here? DSCR is equal to 70 by how much day service came? It was 35, right? We are 70/35, meaning we earn enough money from our business to easily repay the loan we have taken. That is what DSCR is. Isn't it? If we take a loan of ₹35 then our earning is ₹70. We earn double the amount as per our loan. So this is DSCR.

[00:16:45]Now let's come to one last formula of yours which you should remember. That is interest coverage ratio.

[00:17:00]Interest coverage ratio. In this it is told whether our company has that much capacity to repay the borrowing amount, you have taken the loan but we do not have the capacity to pay the interest, see what the bank does, it does a complete check before giving the loan, it will check the ICR as well, it will check the DSCR as well that whichever business, whichever company it is giving the loan to, does it have that much capacity to repay the entire amount.

[00:17:31]Yes or no? Now is that yes or no? How is it decided? If you look at the full amount, will we get the full amount?

[00:17:40]Principal plus interest will be known from DSCR. But the interest coverage ratio is mentioned in ICR only.

[00:17:46]Hey company, do you earn so much that you can give us our money with interest? Only then will we give you a loan.

[00:17:54]So who will know that?

[00:17:57]From the interest coverage ratio. So measures the ability of a company to pay interest on borrowings. The formula is EBIT divided by interest expense. You just saw how EBIT is calculated, right? Yes. I just saw the IC here, haven't you forgotten? I just saw it here. Yes. So ICR interest coverage ratio equals to EBIT minus interest expense. So 150 is given in the question. 30 is given. How much will it cost?

[00:18:24]150 / 30 so that is going to be 5 times the earning, we the company person will say that we earn 5 times, we earn more than your interest, the interest which is ₹100, then we will earn ₹500, five means our income is five times more, so don't worry, the bank will easily pay us the interest, so these five formulas are important for you for CCT if you are going in June or going to appear in July and if you want to enroll in our batches then you can also purchase the batches from the official website of Under 247, CCP batch or the best option is that you can also join by taking help of our experts.

[00:19:11]And the number is 09819819247.

[00:19:18]So this is the number of our experts where they will guide you which CCP course you can apply for, how you can prepare for it and if you are going to purchase directly then remember there is a coupon code through which you get maximum discount and that coupon code is Y895 ok so with this let's find up this session I hope you found today's session useful if you want its part two also