8/12/2019 Basic About Cma

1/2

Introduction: Credit Monitoring Arrangement (CMA) data is a very important area to

understand by a person dealing with finance in an organisation. It is a critical analysis of

current & proected financial statements of a loan applicant by the ban!er. CMA data is asystematic analysis of wor!ing capital management of a borrower and obective of this

statement is to ensure the usage of long term and short term fund have been used for the

given purpose. In this article I want to discuss about the basic contents of the CMA data."asically CMA data contains the # statements which as follows.

$. %articular of 'isting & proposed limits: his is the first statement in the CMA atawhich contains the present fund & non fund based credit limits of the borrower and their

usage limits and history. Along with present fund limits what is the proposed or applied

limit of the borrower will be mentioned in this statement* this is an basic information

document which provided by the borrower the ban!er.

+. ,perating statement: his is the second statement which provided by the borrower* this

indicates the business plan of the borrower which gives the Current -ales* irect &

indirect e'penses* %rofit before & after ta' along with the proections of sales* e'pensesand profit position for the to / years based on the borrower wor!ing capital re0uest.

his statement is a scientific analysis of current & proected financial and profitgenerating capacity of the borrower.

. Analysis of "alance sheet: "alance sheet analysis for the current & proected financialyears is the third statement in CMA data. his statement gives the detailed analysis of

Current & noncurrent assets* fi'ed assets* cash & ban! position* current & noncurrent

liabilities of the borrower. Also this statement indicates the net worth position of the

borrower for the proected years. "alance sheet analysis gives a complete financialposition of the borrower and cash generating capacity during the proected years.

1. Comparative statement of Current Asset & liabilities: 2ourth statement which givesthe comparative analysis of current assets & current liabilities movement of the borrower.

his basically decides the actual wor!ing capital cycle for the proected period and the

capacity of the borrower to meet their wor!ing capital re0uirements.

/. Calculation of M%"2: his is a very important statement and calculation which

indicates the Ma'imum %ermissible "an! 2inance. his statement which calculates the

borrower wor!ing capital 3A% and permissible finance in two lending methods* firstmethod of lending will allow the M%"2 #/4 of the net wor!ing capital 3A% which is

Current assets less current liabilities* -econd method of lending will allow the M%"2 #/

4 the current assets less current liabilities. -o only the M%"2 limit is the cash creditcomponent of the borrower which generally !nown rawing power (% 5imit). -o this is

very important statement which decide the borrower6s borrowing limit from the ban!.

7. 2und flow statement: 2und flow statement analysis for the current & proected period

is one of the statements in CMA data. his statement analysis borrower fund position

with reference to the wor!ing capital analysis given in M%"2 calculations & proected

8/12/2019 Basic About Cma

2/2

balance sheets. "asic obective of this statement capture the funds movement of the

borrower for the given period.

#. 8atio analysis: his is the last statement which gives the !ey ratios to the ban!er based

on the CMA data prepared and submitted to the ban! for finance. "asic !ey ratios are

3ross profit ratio* net profit ratio* current ratio* % limit* M%"2* 9et worth* ratio of networth with 5iabilities* 0uic! ratio* stoc! turnover* asset turnover* fi'ed asset turnover*

current asset turnover* wor!ing capital turnover* ebt 0uity ratio etc.

. Conclusion: In this article I tried to give a basic idea of a CMA data & its contents. I

hope it will be useful for the readers.