The Principles of CMA data :
Basics: Credit Monitoring Arrangement (CMA) data is a very important data, which is analyzed by Bank and Financial Institutions at the time of loan proposal, like Project Loan, CC / OD Limit, Term Loans, Expansion of business etc. This data is not only useful to bank, but also for the company. The data are to be minutely analyzed, and if necessary corrective action is to be taken at Company’s level. There are some important datas, ratio analysis, etc, which must be within the Bank’s criterion, in order to obtain required funding. CMA data is a very systematic analysis required for funding by banks. This will ensure that the funds so provided by the banks are used for the purposes envisaged in the loan application.
The main branches of CMA data are as under :-
1. If it is an existing unit, having availed credit facilities, it is beneficial to give the projections given for the last year v/s achievement of targets, for easy compassion purpose, and to know the firm’s capacity to meet the commitment already made.
2. For existing companies, data of past 2 years are to be given to know and assess the financial health of the unit and also the progress of business.
Operating statements of business : The details of past sales, present sales and future estimated sales, so also direct and indirect expenses, etc. In other words this is a statement of all income and expenditure and net profits earned by the firm. Various analyses are made on this statement.
Balance sheet : The details of fixed assets (existing or to be added) details of all current assets, non current assets, long term investment etc are given on the asset side. In the liabilities side, capital, short time borrowing, long time borrowing, etc are given. This will show the financial position of the bank, and the ability to repay the loans. A very detailed analysis is done on Balance Sheet.
Calculation of Maximum Permissible Bank Finance : There are different methods adopted by bank to arrive at quantum of finance to be provided to the applicant firm. The main methods adopted by major banks are Tandon Committee 1st or 2nd method, and Nayak Turnover method. This method is used to arrive at Working Capital Limit.
Comparative statement of Current Assets & Liabilities : This statement deals with all current assets and liabilities of the firm to arrive at Working Capital Gap and Net Working Capital Gap. This statement is analyzed minutely to decide upon the Working Capital requirement of the firm.
Fund Flow and Cash Flow Statements : The details of incoming funds and out flow of funds are narrated in details, so also of the Cash inflow and outflow. This is to ensure that the funds are not misused.
Ratio Analysis : Various ratios are analyzed by banks to know the working of the firm. There are some criterion set by bank, there should not be much variation in the ratios as prescribed by the bank. The firm has to ensure that the Ratios are within the acceptable range of banks. Some of the important ratios are Quick Ratio, Current Ratio, Gross Profit Ratio, Net Profit Ratio, Net Worth Ratio, MPBF, Debt Equity Ratio, Interest coverage ratio, DSCR , Asset turnover ratio, etc.