CMA REPORT

A Credit Monitoring Arrangement (CMA) report is a financial document that presents a company's historical and projected financial performance for a bank to assess its creditworthiness. It is most commonly required when a business applies for a bank loan, especially for working capital or term loans above certain thresholds. 

The report helps a lender understand the flow of funds within a business, evaluate its financial health, and determine its ability to repay the loan. 

Key components of a CMA report

A comprehensive CMA report typically includes the following seven statements, prepared in accordance with RBI norms: 

1. Particulars of current and proposed limits: This section details the company's existing credit facilities and provides information on the new limits it is requesting.
2. Operating statement: This shows the company's historical financial performance, including past sales and expenses. It also provides sales, profit, and expense projections for the next 3 to 5 years.
3. Balance sheet analysis: This statement analyzes the company's current and non-current assets and liabilities for both past and projected financial years.
4. Comparative statement of current assets and liabilities: This comparative analysis helps determine the company's working capital needs and assesses its ability to meet them.
5. Maximum Permissible Bank Finance (MPBF) calculation: This crucial calculation determines the maximum amount of credit a bank can extend to the borrower based on its working capital needs.
6. Fund flow statement: This tracks the movement of funds into and out of the business for the relevant period.
7. Ratio analysis: This provides key financial ratios for analyzing liquidity, profitability, and solvency. Common ratios include the Debt-Equity Ratio, Current Ratio, and Net Profit Ratio. 

Documents required to prepare a CMA report 

To create a CMA report, a Chartered Accountant (CA) or financial expert will need the following information: 

• Last two years' audited financial statements (Profit and Loss Account, Balance Sheet, and Cash Flow Statement).
• Provisional financial statements for the current financial year.
• The latest bank sanction letter (for loan renewal cases).
• Term loan repayment schedule, if any.
• Details of proposed credit limit enhancement, if applicable.
• Income tax returns for the business and its owners.
• A cost sheet showing direct and indirect expenses.
• Any assumptions made for future financial projections. 

The CMA report preparation process

1. Data collection: All relevant historical financial data, tax returns, and current financial information are collected.
2. Report preparation: A CA or financial expert prepares the detailed seven-statement report, including both historical analysis and realistic future projections.
3. Review and analysis: The professional thoroughly reviews the report to ensure accuracy, compliance with RBI norms, and consistency across all statements.
4. Submission and follow-up: The finalized report is submitted to the bank along with the loan application. Any clarifications or revisions requested by the bank are addressed.