How to Prepare a CMA Report
for Bank Loans — Step by Step

Preparing a CMA (Credit Monitoring Arrangement) report from scratch is one of the most involved tasks in bank loan documentation. A complete CMA submission for a mid-sized manufacturing unit typically takes an experienced CA 4–6 hours. This guide walks you through every step — so whether you are doing it manually or using an online tool, you know exactly what is needed and why.

Before You Start — What You Need

Gather these documents before opening a spreadsheet or tool:

• Audited Balance Sheets and P&L for the last 2 financial years
• Current year provisional accounts (if available) or management estimates
• Schedule of fixed assets — cost, accumulated depreciation, WDV
• Loan sanction letters — existing term loans, CC limits, interest rates, repayment schedules
• Promoter's equity and proposed capital injection details
• Business plan / order book to support revenue projections
• Industry context — gross margin benchmarks, working capital norms for the sector

Without the above, you will be making projections on very thin ground — and a credit officer will spot it immediately.

Step 1 — Gather and Organise Historical Financial Data

The first section of every CMA report is historical actuals — typically the last 2 audited years. Some banks ask for 3 years if the business has a longer track record.

Extract from audited accounts:

• Net Revenue / Net Sales (after returns and discounts)
• Cost of Raw Materials / Cost of Goods Sold
• Manufacturing expenses (power, labour, consumables)
• Gross Profit
• Selling, General & Administrative expenses
• EBITDA (Earnings before interest, tax, depreciation, amortisation)
• Depreciation (as per Companies Act, not IT Act)
• Interest on working capital and term loans (separately)
• Profit before tax and Net Profit after tax

Step 2 — Enter P&L Data into Form II (Operating Statement)

Form II is the operating statement — essentially a reformatted P&L in the bank's prescribed format. The key lines that banks scrutinise:

Step 3 — Build Revenue and Cost Projections

This is the most judgement-intensive step. Projections must be:

• Conservative — banks distrust optimistic forecasts
• Consistent — growth rates should align with capacity, sector trends, and order book
• Internally consistent — if revenue grows 20%, COGS cannot stay flat

How to Project Revenue

Use one or more of these approaches:

• Capacity-based: Current capacity utilisation × growth in capacity × selling price
• Order-book-based: Confirmed orders for next year + normal pipeline
• Historical trend: Average CAGR of last 3 years, adjusted for market conditions
• Industry benchmark: Sector growth projections from industry bodies or RBI reports

A revenue growth of 10–20% per year is generally accepted by banks for established businesses. Growth rates above 25% need supporting evidence (new orders, expansion, export orders, etc.).

How to Project COGS and Expenses

Use gross margin percentages from historical years as the base. For projections:

• Raw material cost as a % of revenue — should be consistent unless there is a specific reason (input price change, product mix shift)
• Fixed overheads grow at inflation (~6–8%), not proportional to revenue
• Employee costs: headcount × average salary growth
• Power & fuel: volume-linked, not pure % of revenue

Step 4 — Prepare Projected Balance Sheet (Form III)

The projected Balance Sheet is derived from the P&L projections and a set of assumptions about assets and funding. The balance sheet must balance — assets = liabilities. Any imbalance means an error in the model.

Asset Side

• Gross Fixed Assets: Opening GFA + capex planned in that year
• Accumulated Depreciation: Prior year + current year depreciation charge
• Net Fixed Assets (WDV): GFA minus accumulated depreciation
• Current Assets: Derived from working capital day assumptions (see Form IV)
• Cash & Bank: Plug figure or separately modelled

Liability Side

• Equity / Net Worth: Prior year net worth + current year retained profit
• Long-Term Borrowings: Opening TL balance minus repayments + new TL drawdowns
• Working Capital Borrowings (CC/OD): The MPBF figure from Form V
• Trade Creditors: Creditor days × COGS ÷ 365
• Other Current Liabilities: Statutory dues, accruals

Step 5 — MPBF Calculation (Form V — Tandon Method)

MPBF (Maximum Permissible Bank Finance) is the ceiling on how much a bank can lend for working capital. It is calculated using the Tandon Committee methodology — every Indian commercial bank uses this framework.

Method 1 (Traditional)

Bank funds up to 75% of Total Current Assets net of current liabilities other than bank borrowings.

Method 2 (More Stringent — Preferred by Banks)

The borrower must fund at least 25% of TCA from own sources (long-term funds). Banks finance the remaining 75% minus any other current liabilities.

Banks will sanction the lower of Method 2 MPBF or the amount applied for. If Method 2 MPBF is lower than the applied CC limit, the bank will cut down the sanction — this surprises many applicants who haven't run the numbers in advance.

Working Capital Days (Form IV assumptions)

MPBF feeds from Total Current Assets, which are driven by working capital day assumptions:

Use industry benchmarks for these days. A jewellery manufacturer holds more finished goods stock than a software firm; a trading company has no WIP. Mis-estimating these days gives an unrealistic MPBF figure.

Step 6 — DSCR Analysis (Debt Service Coverage Ratio)

DSCR is applicable only for term loans. It measures whether annual cash generation is sufficient to service annual debt obligations (principal + interest).

What DSCR Values Mean

DSCR must be calculated for every projection year, not just year 1. Banks want to see that DSCR stays above 1.5 throughout the repayment period. A CMA with DSCR of 2.5 in Year 1 that drops to 0.9 in Year 3 will be rejected.

Step 7 — Fund Flow Statement (Form VI)

The Fund Flow Statement shows where funds are coming from and where they are being deployed each year. It is a sanity check on the Balance Sheet — if the numbers are right, sources must equal uses.

Sources of Funds

• Net Profit after tax (from Form II)
• Depreciation (non-cash, added back)
• Increase in long-term borrowings (new TL drawdowns)
• Increase in equity / share capital
• Decrease in long-term investments or other assets

Uses of Funds

• Capital expenditure (purchase of fixed assets)
• Increase in net working capital (growth requires more WC investment)
• Repayment of long-term debt (principal)
• Dividend payments (if any)

A healthy business should primarily be funding long-term assets (capex) from long-term sources (equity, TL) — not from working capital borrowings. If your Fund Flow shows short-term funds being diverted to capex, banks will flag this as a misuse of working capital.

Step 8 — Ratio Analysis

Ratio Analysis gives the bank a quick financial health scorecard. A complete CMA submission includes ratios across four categories:

Liquidity Ratios

• Current Ratio = Current Assets ÷ Current Liabilities. Must be above 1.33 for most banks.
• Quick Ratio = (CA – Inventory) ÷ CL. Stricter liquidity check.

Profitability Ratios

• Gross Profit Margin, EBITDA Margin, Net Profit Margin
• Return on Capital Employed (ROCE), Return on Equity (ROE)

Solvency / Leverage Ratios

• Debt-Equity Ratio = Total Debt ÷ Net Worth. Banks prefer this below 3:1 for manufacturing, 2:1 for services.
• TOL/TNW (Total Outside Liabilities / Tangible Net Worth)

Efficiency / Activity Ratios

• Inventory Turnover, Debtors Turnover, Creditors Turnover
• Fixed Asset Turnover, Total Asset Turnover

Common Mistakes That Lead to Rejection

These are the most frequent reasons a CMA report gets returned by the credit officer or leads to a reduced sanction:

Faster Approach: Use the Online CMA Tool

The step-by-step process above, when done manually in Excel, takes an experienced CA 4–6 hours per client. The JS & Co CMA Data Tool automates all the above steps — you enter the inputs and the tool builds all 6 forms, DSCR, ratios, and Fund Flow automatically.

What the Tool Does for You

• Supports 20+ industry profiles with preset working capital day norms and margin benchmarks
• Handles new entities (projections-only) and existing entities (historical + projected)
• Calculates MPBF under both Tandon Method 1 and Method 2
• Flags DSCR below 1.5 so you can adjust inputs before submission
• Generates 21 financial ratios and highlights ratios outside safe ranges
• Exports to Excel in 8-sheet bank-ready format
• EMI schedule for term loans and DLOD facilities

The tool is free to preview with a watermark. Pro plans — available for a day, week, month, or year — remove the watermark and unlock PDF + Excel download for all projection years. CA certification is available separately. See current pricing →