Basic concepts of CMA data

Introduction:  Credit Monitoring Arrangement (CMA) data is a very important area to understand by a person dealing with finance in an organisation. It is a critical analysis of current & projected financial statements of a loan applicant by the banker. CMA data is a systematic analysis of working capital management of a borrower and objective of this statement is to ensure the usage of long term and short term fund have been used for the given purpose.  In this article I want to discuss about the basic contents of the CMA data. Basically CMA data contains the 7 statements which as follows.

1. Particular of Existing & proposed limits:  This is the first statement in the CMA Data which contains the present fund & non fund based credit limits of the borrower and their usage limits and history. Along with present fund limits what is the proposed or applied limit of the borrower will be mentioned in this statement, this is an basic information document which provided by the  borrower the banker.

2. Operating statement: This is the second statement which provided by the borrower, this indicates the business plan of the borrower which gives the Current Sales, Direct & indirect expenses, Profit before & after tax along with the projections of sales, expenses and profit position for the 3 to 5 years based on the borrower working capital request. This statement is a scientific analysis of current & projected financial and profit generating capacity of the borrower.

3. Analysis of Balance sheet: Balance sheet analysis for the current & projected financial years is the third statement in CMA data. This statement gives the detailed analysis of Current & noncurrent assets, fixed assets, cash & bank position, current & noncurrent liabilities of the borrower. Also this statement indicates the net worth position of the borrower for the projected years. Balance sheet analysis gives a complete financial position of the borrower and cash generating capacity during the projected years.

4. Comparative statement of Current Asset & liabilities:  Fourth statement which gives the comparative analysis of current assets & current liabilities movement of the borrower. This basically decides the actual working capital cycle for the projected period and the capacity of the borrower to meet their working capital requirements.

5. Calculation of MPBF: This is a very important statement and calculation which indicates the Maximum Permissible Bank Finance. This statement which calculates the borrower working capital GAP and permissible finance in two lending methods, first method of lending will allow the MPBF 75% of the net working capital GAP which is Current assets less current liabilities, Second method of lending will allow the MPBF 75 % the current assets less current liabilities. So only the MPBF limit is the cash credit component of the borrower which generally known Drawing power (DP Limit). So this is very important statement which decide the borrower`s borrowing limit from the bank.

6. Fund flow statement: Fund flow statement analysis for the current & projected period is one of the statements in CMA data. This statement analysis borrower fund position with reference to the working capital analysis given in MPBF calculations & projected balance sheets. Basic objective of this statement capture the funds movement of the borrower for the given period.

7. Ratio analysis: This is the last statement which gives the key ratios to the banker based on the CMA data prepared and submitted to the bank for finance. Basic key ratios are Gross profit ratio, net profit ratio, current ratio, DP limit, MPBF, Net worth, ratio of net worth with Liabilities, quick ratio, stock turnover, asset turnover, fixed asset turnover, current asset turnover, working capital turnover, Debt Equity ratio etc.

8. Conclusion:  In this article I tried to give a basic idea of a CMA data & its contents. I hope it will be useful for the readers.

Thank you.

CMA Ramesh Krishnan