CMA DATA

1. What is a CMA data?

CMA data is an extensively used term in banking and by analyst in the credit department of the banks. It was formulated as Credit Monitoring Arrangement data by applying a standard analysis consisting of 6 Forms by RBI. This data is collated from the Balance Sheet and Profit & Loss Statement of the Company/Firm by incorporating the past data and providing realistic estimate/projections for the future financial years in terms of various major parameters like sales, net profit, current ratios, TOL / TNW etc. This forms are now available in excel sheet with formulae, where once a data is fed, all forms I to VI are ready for submission to the bank.

2. How this data is useful to the bankers?

This is a very useful data submitted by the companies availing Cash Credit and Term Loan facilities to conservatively and realistically analyze the past, present and future of the financial indicators of the company. The banks / financial institutions take informed decision in order to appraise the project by critically analyzing the financial indicators. The validation is done by analyzing the inputs / outputs in each form.

3. What are the components of CMA data? What are the VI forms?

3.1. Form I

In this form, the particulars of existing loan details, present bankers, present outstanding (as on the date of submission of the data) are furnished. The form gives the “Credit Limit” requested.

3.2 Form II

Operating Statement

In this form, the company’s profit and loss account details are compiled based on broad heads. The income, sales and expenses are grouped under major heads like

• Income
• Sales (export and domestic), Gross and Net sales
• Other Income(Rent, job work charges, etc)
• Expenses
• Raw materials, stores,
• Wages
• Job work charges
• Power
• Selling & Administrative Expenses
• Salary
• Accounts expenses
• Office Rent
• Selling Expenses, market promotion, advertisement
• All Miscellaneous expenses
• Interest
• Depreciation

Once proper grouping of various income and expenses are made, some of the financial indicators are available for analysis for e.g.

1. Net profit/Sales%
2. PBT/Net Sales%
3. Raw material/Sales%

This data is used by the company and bank to prepare the correct estimate and projection in the next 2 financial years for working capital assessment and 2 to 7 years of projections to appraise the term loan.

3.3 Form III (Analysis of Balance Sheet)

LIABILITIES	ASSETS
CAPITAL	FIXED ASSETS
LONG TERM LIABILITIES	MISC. ASSETS
SHORT TERM LIABILITIES (CURRENT LIABILITIES)	CURRENT ASSETS

Once the data is properly grouped from the Audited Balance Sheet for the past 2 or 3 years, this form throws financial indicator data to highlight the past financial parameters of the company. The assumptions for future years are also compared with the past balance sheet components as above and any observations are corrected.

3.3.1 Current ratio = Current assets / Current liabilities (liquidity ratio)

This ratio is an important tool that gives the liquidity status of the company. If the ratio is more than 1.33 the company’s liquidity is considered good. This data gives information of diversion of short term funds for acquiring any long term needs like land, building etc.

3.3.2 Total outside Liabilities /Tangible Net worth (Gearing ratio)

A company’s strength lies to the extent of outside borrowings to own capital. Higher the ratio, higher the risk.  The normal acceptable ratio for a SME unit shall be 3:1. Suppose, 'A' starts a business with a capital of Rs.1.00 cr, he can raise loan, maximum of Rs.3.00 cr including bank and creditors. The net profit should be retained in order to boost the ratio on an ongoing basis. Rating agencies give higher mark for the good leverage say 2:1 and a good current ratio 1:1.33.

4. Form IV (comparative statement of current assets and current liabilities)

This is a form which primarily addresses the holding period of the raw material, semi finished goods, finished goods, inventory and receivable holding level, creditors holding levels measured indays / months. Bankers can easily interpret the levels by comparing industry, peers and any mismatch could be identified.

5. Form V (Assessment of Bank Finance & Maximum Permissible Bank Finance)

This form plays a vital role for the bankers to assess the working capital gap. The bank decides how a portion of the Total current assets could be funded by Bank Finance.  The projected current assets will be validated and the quantum of working capital would be fixed through this form by analyzing critically.

6. Form VI (Fund Flow)

This form analyses the fund flow of the company from a long term perspective. The long term sources are net profit, depreciation, capital increase, decrease in other non-current assets etc. The long term uses are net loss, decrease in term liabilities, increase in fixed assets, dividend payouts etc.  This form discusses the long term movements of the funds and any diversion of funds will be reflected here. 

7. 10 major highlights from a CMA data

1. Whether the sales estimated, are realistic and how it is validated? Is the increase in sales achieved by expansion / price increase / capacity building?
2. Profitability

Is the profit / sales % estimated in line with the past trend and how the company justifies the increase in profitability?

3. Liquidity Management

Is the net working capital is increasing year on year basis and the adequacy thereon to build up the current assets (estimated).

4. Any abnormal variation in outside liabilities to capital. Is the company bringing enough capital to meet the increased liabilities through banks funding.
5. Servicing capability of the all loans (CC & Term Loan).
6. Any diversion of funds from short term to long term uses.
7. Is there any major variation in the estimates in the operating cycle of the company in the production process from raw material, semi finished goods, finished goods, debtors and cash?
8. Is the Return On Capital Employed (ROCE) showing improving trend? The profit before depreciation, interest and tax to Total Capital Employed gives the % of ROCE. The comparison gives good information for the Bankers and also investors.
9. Helps to identify the shortfall in financial parameters so that a corrective action is made by the management in order to get a good rating from rating agencies.
10. The form acts as a blue print both at the hands of the Bank and the Company. Financial follow up reports are analyzed quarterly basis based on the estimates / actual on  QoQ basis.

8. Sum up

There are various documents a company shall be submitting to the bankers to seek credit facilities. A company can create a good story about the industry and its future prospective. However, the banker will relay more this CMA data to arrive at the final credit decision. Therefore, understanding the business and preparing the business plan in line with the CMA data would seek the attention of the bankers to view the project in terms of numbers and exact credit requirements.

To prepare a CMA data, the promoter should spend valuable time with the Financial Consultant and present the same neatly. The basic check list details required to prepare the same is as under,

1.  Last 3 Financial years audited financials. (unaudited for the previous FY if not ready).
2.  Sales during the current year up to last month supported by GST.
3.  Proposed Credit Requirement for CC and TL.
4.  Orders on hand (export/domestic/job work break up).
5.   Details of expansion plan if any.
6.   Basic income workings per day/per week/per month etc 

(For Term Loan more details shall be required)

This data is the business plan of the Firm / Company and to boost the relationship for the credit growth the owners/promoters could delve deeply in presenting the estimates/projections with almost clarity.