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    Question

    Which of the following is /are a part of the Credit

    Monitoring Arrangement (CMA) report used by banks?   A. Analysis of Balance sheet   B. Comparative statement of Current Asset & Current liabilities    C. Calculation of Maximum Permissible Bank Finance (MPBF) D. Ratio analysis  
    A A, B and C Correct Answer Incorrect Answer
    B A, B and D Correct Answer Incorrect Answer
    C A, B, C and D Correct Answer Incorrect Answer
    D A, C and D Correct Answer Incorrect Answer
    E B, C and D Correct Answer Incorrect Answer

    Solution

    Credit Monitoring Arrangement is a report wherein the past and projected financial performance of a business is compiled in a certain format with all the required financial metrics and ratios to help Bankers and Financial Analysts ascertain the financial health of a business. Most Bankers request a business loan applicant to prepare CMA report to understand the flow and application of funds in a business. A professionally prepared CMA report can improve the chances of obtaining bank loan.    It covers the following statements:    1. Particulars of current & proposed limits (FORM I): The first statement in the CMA report states about the existing fund & non-fund-based credit limits, their usage limits and history. In addition to this, the statement also contains the proposed or applied limit of the borrower. This document is a basic document which is to be provided by the borrower to the banker.     2. Operating statement (FORM II): This is the second statement which indicates the borrower's business plan showing the Current Sales, profit before & after tax, sales projections, direct & indirect expenses, and profit position for 3 to 5 years. These requirements are case to case specific on the basis of the borrowers working capital request. This is a scientific analysis of existing & projected profit-generating capacity of the borrower.    3. Analysis of Balance sheet (FORM III): This is the third statement in the CMA data, this statement contains an analysis of the current & projected financial years . It helps in providing a comprehensive analysis of current & non-current assets, current & non-current liabilities and cash & bank position of the borrower. This statement also specifies the net worth position of the borrower for the future projected years. As the name says, it is the analysis of the Balance sheet and gives a complete picture of the financial position of the borrower.    4. Comparative statement of Current Asset & Current liabilities (FORM IV) : This is the fourth statement which provides the comparative analysis of the movement of the current assets & liabilities. Basically, this analysis helps to decide the capacity of the borrower to meet the working capital requirements and the actual working capital cycle for the projected period.    5. Calculation of Maximum Permissible Bank Finance (MPBF) (FORM V): This is the fifth statement and a very important one. This includes a calculation which indicates the Maximum Permissible Bank Finance. It shows the borrower's capacity to borrow money.    6. Fund flow statement (FORM VI): The next statement is the Fund flow analysis for the current & projected period. In this analysis, it indicates the fund position of the borrower with reference to the projected balance sheets and MPBF (Maximum Permissible Bank Finance) calculations. The main objective of this statement is to capture the movement of the fund for the given period.    7. Ratio analysis (FORM VII): This is the last statement in CMA report which provides key financial ratios for the Financial Analysts and Bankers use. The basic key ratios are Gross profit ratio, Net profit ratio, Current ratio, Quick ratio, Stock turnover ratio, Net worth, the ratio of Net worth to Liabilities, DP limit, MPBF, Asset turnover, Current asset turnover, Working capital turnover, Fixed asset turnover, Debt-Equity ratio etc.  

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