CMA Report Preparation Services - Wellcorp

A Credit Monitoring Arrangement report also abbreviated as CMA report is an important document in the form of a report which indicates the projected financial performance and the past financial performance of a business.  

The concept of CMA was originated from major recommendations of the Tandon Committee, in 1974 by working capital finance and vigilance over the use of bank credit for different sectors. Currently, Reserve bank of India regulations is followed. 

CMA report is a part of essential documents that a business should own for providing the user a quick and overall assessment about the concern. The users of CMA can perceive the financial health of the organisation from it. 

CMA reports are usually prepared for banks in the process of loan application and sanction. With CMA reports banks assess the genuine usage of capital and funds of the organisation and the resultant growth, which is necessary to ensure the repayment capability of the organisation. 

Thus, denoting CMA report as one of the important criteria of loan approval or rejection would not be an overstatement. 

Different Types of Bank Loan Facilities 

• Term Loan 

A term loan is sanctioned by Banks for specific purposes like acquiring fixed assets, such as land, building, equipment, and other long-term assets. Repayment is fixed over 5 years or more with EMI payments or bullet payments (lumpsum repayment). 

• Working Capital 

The working capital loan is sanctioned by Banks for operational purposes like holding inventory, receivables, and acquiring some other current assets in a business. Working capital facilities are renewable every year. 

• Letter of Credit 

A Letter of credit is a type of facility from a Bank which guarantees a buyer's payment to a seller, in the event of failure of repayment from the buyer’s side. 

• Bank Guarantee 

A Bank guarantee is a promise from a bank that the liabilities of a person will be met by the Bank if the person fails to fulfil contractual obligations. These are requested while executing large and heavy financial projects. 

• Mortgage Loan 

A Mortgage loan is a loan that is backed by the real property by putting a lien on the property being mortgaged. The funds generated from a mortgage loan can be used by the business for any purpose. 

Under the prevailing rules, the Reserve Bank of India has mandated all banks to prepare CMA for lending to large borrowers. Hence, CMA data is required for project loans, term loans, and working capital limits. 

The statement covered in CMA Report: 

• Particulars of Current & Proposed limits –  

The borrower must supply this to the bank, as it clarifies the credit limits of the business under which it operates and also a history of credit usage. 

• Operating statements - The Operating statements comprise the sales, profits, sale projections, expenses, etc, to get a review of the existing as well as the projected profit-generating ability of the borrower. 

• Analysis of Balance Sheet - This statement provides a wholesome picture of the borrower's financial position, in context with the past and the future projections. 

• Comparative Statements of the Current Assets as well as the Current Liabilities – This is an important document that differentiates the current assets and the liabilities which aid in the calculation of the actual working capital cycle for the projected period. 

• Calculation of Maximum Permissible Bank Finance (MPBF) - This statement indicates the limits on the borrower’s capacity to borrow money. 

• Fund Flow Statement - In simultaneous view, the MPBF as well as the projected balance sheets, the fund flow statement is used to capture the movement that is inward and outward flows of the funds. 

• Ratio Analysis - Technical ratios which apply to the undertaking to get a brief financial analysis about the health of the business gets mentioned here. 

1. Income Tax Returns filed by the entity and the owner. 

2.  Last 2 years Audited Financial Statements of the entity. 

3. Provisional Financial statement of the year for which CMA Data is being prepared. 

4. Notes and instructions, if any about the assumptions to be used while preparing Projected Financial statements. 

5.  Cost sheet of Direct and Indirect expenses.   

The format of CMA Data generally contains preceding two years actual performance, estimated figures of the ongoing year, and next five years projections and details of: 

• Profit and Loss Account 

• Cash Flow Statement 

• Ratio Analysis 

• Balance Sheet 

• Fund Flow Statement 

• Analysis of Maximum Permissible Bank Finance