CMA DATA FOR BANK LOAN: CREDIT MONITORING ARRANGEMENT

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CMA DATA FOR BANK LOAN: CREDIT MONITORING ARRANGEMENT

In these Scenarios of Post Transitional Phase of COVID 19 , to manage the working capital requirements, entrepreneurs are moving towards bank to raise funds at cheaper rate instead of investing their own Capital funds.

Banks are also interested in giving loans to businesses that have strong financial and repayment capacity. When entrepreneurs approach bank then they ask for Project report and CMA data of business, so that they can analyze the financial soundness of business. CMA Data is based on Audited/Provisional/Projected Financial statement of the business.

Checklist for preparing Project Report and CMA data are as follows:

  • ITR of the Business and its owners
  • Last 2 years Audited Financial Statements
  • Provisional Financial statement for the year in which we are preparing CMA Data
  • Notes on assumptions used by entrepreneurs while preparing Projected Financial statements
  • Cost sheet of Direct and Indirect expenses

Normally in CMA Data, entrepreneurs have to provide 5 Years comparative financial statements. 2 Years Audited, 1 Year Provisional and 2 Years Projections based on realistic data.

In preparation of CMA Data, ratio analysis plays a vary vital role. The CMA Data must be prepared with due care. Loan application approval is mainly depended on these financial figures and ratios. Further, presentation of CMA data is little bit different in case of Manufacturing unit and trading unit. So, we need some additional inputs in case of manufacturing units.

To present the Profit/ Loss statement, we have to prepare manufacturing account, Trading and Profit/ Loss statement which depicts comparative data of 5 years. In this statement, we have to give details related to Sales, Cost of sales (it includes details related to Raw material consumed, direct and indirect expenses related to manufacturing activities, cost of production, interest expenses incurred, bifurcation of operating and non-operating expenses, calculations of taxes to pay.

Preparation of Balance Sheet includes comparative presentation of fixed assets, Investments, current assets like Cash and bank balances, receivables and showing of current liabilities. All details should be provided in elaborated form like if receivable amount includes export related receivable, then we have to show receivable in 2 parts – export related receivables and other than export related receivables. While preparing CMA data, it is easy to get details of 3 years (2 Years audited and 1 year provisional).

We have to give adequate attention while preparing projected summary of next 2 years. While making projected financial statements, we have to keep in mind, the economic conditions, orders in hand, future government policies that may impact our business. And all projected figures must be in correlation with our past 3 years data. If any exceptional increase/decrease is made in any head then we must explain the same in our CMA data and project report. We have to explain our assumptions related to future forecast.

In case of requirement of funds to start new project, it should describe that project related information in the project report. The main purpose of CMA data is ratio analysis. By presenting figures in comparative format, it is important to present realistic figures before investors/ banker by using ratio analysis. Mainly used ratio while preparing CMA Data is as below:-

  • Gross Profit Ratio (%)
  • Operating Cost Ratio (%)
  • Operating Profit Ratio (%)
  • Net Profit Ratio (%)
  • Interest Coverage Ratio (Times)
  • Debt-Service Coverage Ratio (DSCR)
  • Debt-Equity Ratio
  • Total Indebtness Ratio
  • Debt Assets Ratio
  • Fixed Assets Coverage Ratio
  • Inventory Turnover Ratio
  • Debtors Turnover Ratio (Days)
  • Creditors Turnover Ratio (Days)
  • Capital Turnover Ratio
  • Total Assets Turnover Ratio
  • Return on Capital Employed Ratio (%)

Important Note: Bankers generally compare, above ratios calculated by businessman, with standard benchmark ratios already available with them. If ratios are not in acceptable limit, then it may lead to rejection of your loan application.

So, it must taken care off while classifying the financial figures in Profit/ Loss account and Balance Sheet like wrong classification of current asset as long-term investment impact our current ratio.

After analyzing financial figures, bankers normally use Nayak Committee Turnover Method/ Tandon lending method to finalize the loan sanction limit.

Along with these financial statements, it is important to prepare fund flow statement, to show case how the funds will be raised and utilized. Preparation of CMA data is very critical and time-consuming work. Professionals on the behalf of entreprenuers have to consider many factors before preparing CMA Data.

CS Tanuj Saxena

is a Qualified Company Secretary from Lucknow having a rich and Core expertise in Secretarial compliances of Companies, Nclt matters and Corporate Litigation matters.

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