Ankush Jain Credit Questions

What is Working Capital?
Working capital is the difference between a company's current assets and current liabilities. It
measures a company’s short-term liquidity and operational efficiency. Positive working
capital indicates that a company can fund its day-to-day operations and meet its short-term
obligations.
What is the Operating Cycle in Business?
The operating cycle is the time it takes for a business to purchase inventory, sell products,
and collect cash from customers. It measures how efficiently a company manages its
inventory and cash flow. A shorter operating cycle means a quicker return on investment.
What Documents are Required to Process a Loan File?
The documents required to process a loan file typically include:
 Identification proof (e.g., passport, driver's license)

 Address proof
 Income proof (e.g., salary slips, tax returns)
 Bank statements
 Business financial statements (for business loans)
 Loan application form
 Collateral documents (if applicable)
What is a Tax Audit Report? What is Form 3CB and 3CD? Main Content of
Audit Report, What is CARO Report?
 Tax Audit Report: A report required by the Income Tax Act to ensure that the
taxpayer's financial records are accurate and comply with tax laws.
 Form 3CB: Used by professionals to report audit details for taxpayers who require
audits under any law other than the Income Tax Act.
 Form 3CD: Annexure to Form 3CB that provides detailed information about various
tax-related aspects of the taxpayer.
 CARO Report: Companies (Auditor’s Report) Order report required for certain
companies to provide additional information regarding the financial affairs of the
company.
What is the Current Ratio? How Can We Improve the Ratio?
The current ratio is a liquidity ratio that measures a company’s ability to cover its short-term
obligations with its short-term assets. It is calculated by dividing current assets by current
liabilities. Improving the current ratio can be achieved by:
 Increasing current assets (e.g., cash, inventory)

 Reducing current liabilities (e.g., paying off debts)
 Improving accounts receivable collection processes

What is MPBF/Tandon Committee Norms?
 MPBF: Maximum Permissible Bank Finance is a method to calculate the maximum

credit limit a bank can offer to a borrower.
 Tandon Committee Norms: Guidelines established by the Tandon Committee to
regulate bank finance for working capital, emphasizing borrowers’ self-financing of a
portion of their working capital needs.
What is the Working Capital Gap?
The working capital gap is the difference between the current assets required to maintain
operational efficiency and the current liabilities. It indicates the additional funds needed by a
business to cover its working capital needs.
Turnover Method of Calculation?
The turnover method involves calculating the working capital requirements based on a
percentage of the projected sales turnover. This method is commonly used by banks to
determine working capital limits for businesses.
Drawing Power?
Drawing power is the amount of money that a borrower can withdraw from a working capital
loan account, based on the value of the current assets provided as security to the bank, after
deducting the margin.
Different Types of Bank Guarantee and Difference Between FLC and ILC?
 Types of Bank Guarantee:

o Performance Guarantee: Ensures the fulfillment of contractual obligations.
o Financial Guarantee: Covers the financial obligations of the debtor.
o Advance Payment Guarantee: Protects the buyer in case the seller fails to
deliver after receiving an advance.
 FLC (Foreign Letter of Credit) and ILC (Inland Letter of Credit):
o FLC is used for international trade transactions.
o ILC is used for domestic trade transactions.
o Both ensure payment to the seller, but the scope and application differ based
on the geographic location of the transaction.
What is Credit Summation and Credit Churning?
 Credit Summation: The total of all credit transactions in a bank account over a
specific period.
 Credit Churning: Frequent and excessive deposits and withdrawals in a bank
account, often to inflate account activity artificially.
What to Check in Bank Statement?
When reviewing a bank statement, you should check for:
 Accuracy of transactions (deposits and withdrawals)

 Unusual or unauthorized transactions
 Consistency with your records
 Bank fees and charges
 Cash flow patterns
Section 185/186 of Companies Act?
 Section 185: Governs loans to directors and prohibits companies from lending to its
directors or to any other person in whom the director is interested, except under
specified conditions.
 Section 186: Relates to loans, investments, and guarantees provided by a company,
specifying limits and disclosure requirements.
Full Form of CIBIL and What is CIBIL Score and Its Range and Meaning?
 CIBIL: Credit Information Bureau (India) Limited

 CIBIL Score: A credit score in India ranging from 300 to 900 that represents a
borrower’s creditworthiness. A higher score indicates better creditworthiness and a
lower risk for lenders.
o 750 and above: Excellent
o 700-749: Good
o 650-699: Fair
o 600-649: Poor
o Below 600: Very poor
Inventory / Debtor / Creditor Days?
 Inventory Days: Average number of days a company takes to sell its inventory.
 Debtor Days: Average number of days a company takes to collect payment from its
debtors.
 Creditor Days: Average number of days a company takes to pay its creditors.
Interest Coverage Ratio?
The interest coverage ratio measures a company’s ability to pay interest on its debt,
calculated by dividing earnings before interest and taxes (EBIT) by the interest expense. A
higher ratio indicates better debt-servicing capability.
What are the Securities Taken for Loan?
Common securities taken for a loan include:
 Real estate property

 Inventory
 Accounts receivable
 Fixed deposits
 Stocks and bonds
 Personal guarantees

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What is Working Capital?

What is the Operating Cycle in Business?

What Documents are Required to Process a Loan File?

The documents required to process a loan file typically include:

 Identification proof (e.g., passport, driver's license)

What is the Current Ratio? How Can We Improve the Ratio?

 Increasing current assets (e.g., cash, inventory)

 MPBF: Maximum Permissible Bank Finance is a method to calculate the maximum

What is the Working Capital Gap?

Turnover Method of Calculation?

 Types of Bank Guarantee:

What is Credit Summation and Credit Churning?

When reviewing a bank statement, you should check for:

 Accuracy of transactions (deposits and withdrawals)

Section 185/186 of Companies Act?

 CIBIL: Credit Information Bureau (India) Limited

Inventory / Debtor / Creditor Days?

Interest Coverage Ratio?

Common securities taken for a loan include:

 Real estate property

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