As I’m sure you have discovered, there is a large number of calculations in the BOK that you can be tested on when you take the CTP exam. The majority of these calculations don’t require a lot of “number crunching” once you’ve decided which equation or arithmetic process to apply and have extracted the pertinent data from the exam question.
However, there are a few calculations you could get as an exam question that can require a substantial amount of “number crunching”. Because of this, there might be a temptation to not prepare for this type of calculation and if one of them comes up in your exam, just guess. While this strategy gives you a 25% chance of getting the correct answer, I’d like suggest a strategy that might increase your chances of answering this type of calculation correctly.
This preparation strategy starts with your asking the following question:
“ Is there a way that my understanding of the underlying concept that this calculation is based on can be tested without the need to perform the entire calculation as it’s presented in the BOK”?
A good example of this type of calculation is forecasting pro-forma financial statements (i.e. Income Statement and Balance Sheet) using the Percent of Sales Method (POSM). So let’s see how my suggested preparation strategy would work in this case (refer to Exhibits 8.5A and 8.5B in the BOK, the Essentials of Treasury Management, 3rd edition).
First, the underlying concept of the POSM is that the value of certain accounts will vary with changes in sales. And primarily these accounts are as follows:
- Cost of Goods Sold
- Selling and Administrative Expense
- Accounts Receivable
- Accounts Payable
Given this, I think your understanding of POSM could be tested with a minimum amount of “number crunching” by asking you the following question:
“ If Accounts Receivable in the current period is $300 and Sales are projected to increase by 10%, what is the forecasted value of Accounts Receivable using the POSM”?
Here’s how it would work:
AR Forecast = AR Actual x (1 + Projected Sales Increase)
= $300 x (1 + .10)
= $300 x 1.10
Of course, there is no way of knowing which calculations will be on the exam. But, by studying how to apply this strategy to those potential exam questions that could require a lot of “number crunching”, you are proactively preparing yourself to answer this type of question rather than just simply guessing at its answer. And finally, with this strategy, you have a tool for studying all of the calculations in the BOK so that “no calculation is left behind”.
-George Schilling, CTP