CMA Report Format

A Credit Monitoring Arrangement (CMA) Report is an essential financial document used by banks to assess the creditworthiness of businesses seeking loans or credit facilities. The report provides a detailed analysis of the company’s financial health, future projections, and repayment capacity. It includes various financial statements and ratios, allowing the bank to make an informed decision about whether to grant or reject the loan application.

This article will cover everything you need to know about the CMA report format, its importance, how to prepare one, and common FAQs related to the report. By the end, you’ll have a clear understanding of how a CMA report works and why it’s crucial for businesses, particularly when applying for large credit facilities or loans.

A CMA (Credit Monitoring Arrangement) report is a structured document that provides a detailed overview of a company’s financial situation, helping banks and financial institutions to assess its creditworthiness. This report includes past financial statements, projected financials, ratios, and working capital requirements.

The Reserve Bank of India (RBI) mandates that businesses seeking loans of significant amounts from banks need to submit a CMA report. It serves as a crucial document that demonstrates the business’s ability to manage loans effectively and repay them on time.

Importance of a CMA Report

• Loan Approval: Banks use CMA reports to determine whether to approve or reject loan applications.
• Financial Planning: The report aids in analyzing the business’s financial structure, helping in effective planning and management.
• Improving Credit: By submitting a CMA report, businesses can improve their credit standing by presenting a well-structured and transparent financial overview.
• Assessing Growth: It helps both the business and the bank assess the company’s growth potential and capital needs for future projects.

A typical CMA report consists of seven key statements that collectively provide a comprehensive financial overview of a business. Let’s break down each component:

1. Particulars of Existing and Proposed Limits

This section lists the details of the company’s current loan or credit facilities and any new loans they are seeking. It includes:

• Existing credit limits (both secured and unsecured loans)
• Proposed credit limits (additional loans or facilities being applied for)
• Repayment terms for current loans
• Interest rates applicable to the loans

2. Operating Statement

The operating statement provides a snapshot of the business’s past and projected financial performance. It typically includes:

• Sales: Actual sales figures for previous years and projected sales for the coming years.
• Gross Profit: Gross profit for the past, present, and future periods.
• Net Profit: Net profit after tax, showing the company’s bottom line.
• Operating Expenses: A breakdown of all operating costs and expenses incurred by the business.

3. Balance Sheet

The balance sheet is one of the most critical parts of the CMA report, as it reflects the business’s overall financial health. The balance sheet includes:

• Assets: Both current and non-current assets, including cash, inventory, machinery, property, etc.
• Liabilities: Current and long-term liabilities, including debt, outstanding bills, and other obligations.
• Equity: The company’s shareholder equity or the capital invested by the owners.

4. Comparative Statement of Current Assets and Current Liabilities

This section compares the company’s current assets with its current liabilities. It helps banks evaluate the company’s short-term liquidity and working capital needs. The comparison usually covers:

• Current Assets: Cash, receivables, inventory, etc.
• Current Liabilities: Short-term debts, bills payable, outstanding expenses, etc.

5. Analysis of Maximum Permissible Bank Finance (MPBF)

This part calculates the maximum amount of loan or working capital finance that a bank can provide to the business. It is based on the company’s working capital requirements and its capacity to repay the loan. The two methods used to calculate MPBF are:

• First Method: Permissible bank finance is determined at 75% of the working capital gap (current assets minus current liabilities).
• Second Method: Permissible bank finance is calculated as the working capital gap minus 25% of current assets.

6. Fund Flow Statement

The fund flow statement shows the inflow and outflow of funds over a specified period. It provides insights into how well the business manages its finances and cash flow. Key sections include:

• Sources of Funds: Loans, capital raised, sales income, etc.
• Application of Funds: Payment of debts, expenses, purchase of assets, etc.

7. Ratio Analysis

Ratio analysis is an essential part of the CMA report, as it helps banks evaluate the company’s financial performance and health. Some of the key ratios calculated in this section are:

• Current Ratio: The ratio of current assets to current liabilities, indicating the company’s liquidity.
• Debt to Equity Ratio: The ratio of debt to equity, showing the company’s reliance on borrowed funds.
• Gross Profit Ratio: The ratio of gross profit to net sales, reflecting the company’s profitability.
• Net Profit Ratio: The ratio of net profit to total revenue, providing insights into overall profitability.

How to Prepare a CMA Report

Preparing a CMA report can seem daunting, but by following these steps, you can ensure that the report is accurate and comprehensive:

Step 1: Gather Financial Statements

Collect the company’s financial statements for the past three to five years, including the balance sheet, profit & loss statement, and cash flow statement. These will form the basis of the CMA report.

Step 2: Project Future Financials

Project the company’s future financials for the next 3 to 5 years. This should include expected sales, operating costs, and profit margins based on market trends and business plans.

Step 3: Calculate Ratios

Perform a thorough ratio analysis to assess the company’s financial performance. This should include liquidity ratios, profitability ratios, and leverage ratios.

Step 4: Compile the Report

Organize the collected data into the seven sections outlined above. Make sure the report is clear, concise, and free of errors.

Step 5: Submit to the Bank

Submit the completed CMA report to the bank along with your loan application. Be prepared to answer any questions the bank may have about the report.

1. Inaccurate Data: Ensure all financial data is accurate and up-to-date, as banks will scrutinize the figures closely.
2. Unrealistic Projections: Avoid inflating future projections in an attempt to appear more creditworthy. Banks will verify the figures and may reject your application if they find discrepancies.
3. Incomplete Information: Make sure all sections of the report are filled out completely. Missing information can lead to delays or rejection of your loan application.
4. Ignoring Ratio Analysis: Ratio analysis is a critical part of the CMA report. Be sure to calculate all relevant ratios and provide a detailed analysis of the company’s financial performance.

1. What is the purpose of a CMA report?

The purpose of a CMA report is to provide banks with a detailed overview of a company’s financial health, helping them determine whether to approve or reject loan applications.

2. Who is required to submit a CMA report?

Businesses applying for large loans or credit facilities, typically exceeding ₹5 crore, are required to submit a CMA report to banks.

3. What financial statements are included in a CMA report?

A CMA report includes the balance sheet, profit and loss statement, fund flow statement, and comparative statement of current assets and liabilities.

4. What is MPBF in a CMA report?

MPBF stands for Maximum Permissible Bank Finance. It represents the maximum amount of working capital finance that a bank can provide to a business, based on its financials and working capital needs.

5. How is the working capital gap calculated in a CMA report?

The working capital gap is calculated as the difference between the company’s current assets and current liabilities.

6. Can a startup apply for a loan with a CMA report?

Yes, startups can also prepare and submit a CMA report to banks when applying for loans or credit facilities.

7. How often should a CMA report be updated?

A CMA report should be updated at least once a year or whenever a business applies for a new loan or seeks additional credit facilities.

8. What is ratio analysis in a CMA report?

Ratio analysis involves calculating key financial ratios such as the current ratio, debt to equity ratio, and profitability ratios to assess the company’s financial health.

9. Is a CMA report mandatory for all businesses?

While not mandatory for all businesses, CMA reports are generally required for companies seeking large credit facilities or loans from banks.

10. How long does it take to prepare a CMA report?

The time to prepare a CMA report depends on the complexity of the company’s finances. On average, it can take anywhere from a few days to a couple of weeks.