Credit Monitoring Arrangement, commonly known as CMA Data is the financial report used by lending institutions to appraise and analyse the financial position of a company before lending. Under the present 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 for working capital limits.
FORMAT AND CONTENTS OF CMA
The format of CMA Data is generally fixed, and it contains preceding two years actual performance, ongoing year estimated figures and next five years projections
It contains detailed
- Profit and Loss Account
- Cash Flow Statement
- Ratio Analysis
- Balance Sheet
- Fund Flow Statement
- Analysis of Maximum Permissible Bank Finance
WHY CMA DATA IS REQUIRED
CMA gives a financial blueprint of a company performance year-on-year. The overall financial health, eligibility for loan, repayment capacity, etc., can be determined with the use of CMA data. A properly planned and well drafted CMA Data is sufficient to establish eligibility for loan.
KEY ASPECTS FOR DRAFTING CMA DATA
- All assumptions and estimates used in preparation of CMA should be mentioned separately
- Future projections should be realistic and not merely arithmetic multiples of current performance
- Fluctuations in performance should be strongly justifiable
- All fixed assets, depreciation and loan repayment schedules should be annexed and linked to CMA Data
- Past performance and actual numbers should be exactly as per Audited Financials
- The company should be able to justify the performance and numbers projected
- In case of multiple businesses activity or locations, detailed annexure should be attached showing breakup of how the projected numbers are arrived at
- CMA Data should represent a viable business performance - over borrowing is unfavourable and cannot be justified through financial ratios
- It is important to note that even though a CMA Data is a very detailed analysis of the Profit and Loss statement and balance sheet of a company, there are only a handful of ratios and indicators on which loan eligibility is decided.
- The key to preparing a good CMA Data is to present a healthy financial projection, but and at the same time - to communicate that funds are needed for expansion. Hence a perfect balance needs to be achieved and explained through the CMA Data - that the company is healthy enough to repay the loan but not so much that it can expand without availing the loan.
In contrast to CMA Data, a project report contains not only financial analysis but also the following
- Company History and Promotor Background
- Analysis of Strengths and Weaknesses
- Need for Loan Funds and how Method of Optimum Utilization
- Current Operations and Market Positioning
- Opportunities and Expansion Plan of the Company