Page 38 - Banking Finance April 2023

ARTICLE

balance sheet provides a clear insight into the
applicant's financial position and the net worth.

Generally, creditors require at least two years of audited
balance sheets and upcoming three years projected
estimates for effective analysis.
4. CHANGES IN WORKING CAPITAL: This is the fourth
statement that provides the comparative analysis of the
movement of current assets& liabilities. This analysis
gives an idea regarding the ability of the applicant to
meet their daily working capital requirements. Besides,
indications regarding the working capital requirement
(actuals) along with future projected cycle growth are
made.
5. CALCULATION OF MPBF: As per the recommendations
of the Tandon committee, calculation of Maximum
Permissible Bank Finance helps us to know the
difference between the working capital requirement &
Steps involved in drafting CMA data.
permissible finance in the borrower's enterprise i.e.
Past performance and actuals should be exactly as per
capacity of the applicant to borrow money.
Audited Financials.
There are generally two ways to calculate
All assumptions and estimates mentioned in preparation of
MPBF:
CMA data should be mentioned separately with valid
o In the first method, the permissible limit of funding
justifications.
shall be 75% of the networking capital gap which
Future projections should be realistic and not merely
means 75 % (current assets less current liabilities
arithmetic multiples of current year figures.
other than bank borrowings).
The borrower has to prepare reports for existing loans,
o Under the second method, MPBF shall allow (75%
credits, repayment status, and any other liabilities in any
of the current assets) less current liabilities other
form.
than bank borrowings.
The borrowing concern need to submit all the financial
Thus, the MPBF limit is only the cash credit component
reports& statements, including Balance sheet and Profit and
of the borrower which is generally known as the
loss accounts and also Audit Report.
drawing limit (DP), and this is the reason why this
statement forms the basis of the CMA report. Calculation of MPBF and preparation of changes in working
capital along with ratio analysis.
6. FUND FLOW STATEMENT: Generally a fund flow
statement of the borrower's enterprise is given to Fluctuations in performance should be justifiable with valid
evaluate if there are sufficient funds available with the reasons.
entity or if the concern is utilizing its funds properly or
All the data pertains to fixed assets, depreciation and loan
not.
repayment history along with schedules should be annexed
7. RATIO ANALYSIS: Last but not the least, analysis of and linked to CMA Data.
operational and financial ratios gives an overall
The entity should be able to justify the performance and
summary of the entity's growth, performance & loan
numbers projected
repayment capacity. Some of the important ratios like
In case of multiple businesses activities or locations, detailed
current ratio, net profit ratio, net worth ratios, quick
report / annexure should be attached showing breakup of
ratio, stock & asset turnover ratios, debt-equity ratio,
how the projected numbers are arrived at?
etc. help the bankers to make the credit decision
regarding approval of funds. CMA Data should represent a viable business performance

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