The RMA Guide to Spreading Financial Statements

What Is Spreading Financial Statements?

Spreading financial statements is defined as the process by which a bank transfers information from a borrower’s financial statements into the bank’s financial analysis spreadsheet program. When the financial information is input correctly, the spreadsheet can generate meaningful financial reports to assist the bank in its analysis of the financial condition of the company. Reports which result from banks' financial statement analysis include, but are not limited to:

  • Common size balance sheet
  • Common size income statement
  • Financial Ratios
  • Statement of Cash Flows
  • Reconciliation of Net Worth

RMA member institutions all over the country annually submit those financial spreads to RMA to be compiled in RMA’s Annual Statement Studies® reports. RMA’s Annual Statement Studies® is the only source of comparative industry data that is sourced directly from the financial statements of business clients of RMA’s member institutions. It provides the banking industry with reliable, accurate benchmarking figures including balance sheet and income statement line items, and financial ratios. All of that starts with a standard, uniform way of spreading of financial statements. If your institution is interested in contributing financial statements for the Annual Statement Studies, please contact Shea Scarpa, Manager, or (215)446-4142.

Important: Bank Spreads Do Not Always Conform to GAAP


Isn’t spreading financial statements just a simple matter of transposing the borrower’s financials into the bank’s spreading program on the exact same lines?


No. While most of the information does get spread in accordance with GAAP, banks spreads deviate from GAAP in some key ways:

  • Current assets that are restricted in any way are spread as noncurrent assets.
  • Current assets that won’t actually convert to cash in the coming 12 months, or possibly ever, are spread as non-current assets.
  • Current assets from related parties are spread as non-current assets.
  • Long-term related party liabilities are spread as current liabilities.


Does the quality of the financial statements factor into the bank financial spreading guidelines?


No. Regardless of whether you are spreading an unqualified audit or a company prepared financial statement, these bank financial spreading guidelines are going to deviate from those financials, i.e., deviate from GAAP, in the ways described in this guide. Bank spreads reflect a more conservative view of the financials than GAAP, and whether it’s a GAAP prepared audit or a GAAP prepared company financial statement, the bank spreading principals remain the same.

Why Do Banks Employ These Deviations From GAAP?

During financial statement analysis banks are most concerned with the borrower’s ability to repay its debt. The presentation of financials in accordance with GAAP doesn’t always match up with that goal. Banks use a more conservative view of spreading financial statements than GAAP.

When evaluating a company’s liquidity, a bank wants to have a better understanding of the current assets that can actually convert to cash to help support the subject debt, if needed.

Financial Spreading Example #1

Prepaid expenses: GAAP prepared financial statements reflect prepaid expenses as a current asset. However, banks spread prepaid expenses as a non-current asset since this asset will never actually convert to cash. They will convert to the value of the expense that was prepaid, but that will not assist the borrower with cash to help service the subject debt. Similarly, in a liquidation scenario, those prepaids will often yield little to no value to reduce the debt.

Financial Spreading Example #2

Notes receivable - related party (due within 12 months): Again, GAAP will reflect this item as a current asset. Banks, on the other hand, spread notes receivable - related party as non-current assets, recognizing that given the common relationship, whether the amount due actually gets paid on time, or at all, can be discretionary.



ABC Company is seeking a new banking relationship and provides its financials to Bank A. Bank A spreads the financials, but notices in the footnotes that a sizable portion of the company’s long-term debt is due to the company’s owner, and spreads that debt as a current liability. As one might imagine, the current ratio reflected in the bank spreads was poor. Spreading that related-party long-term debt as a current liability sent up a signal that was reflected in the low current ratio. The bank, in its analysis of the owner’s personal financial condition included an assessment as to what reliance the owner had on payments of that debt in order to meet his own personal obligations.

If Bank A found, 1) a high reliance, acceleration might be a possibility and a drain on ABC Company, or 2) little to no reliance, a covenant limiting payments on the debt to some formula or threshold could be negotiated. If the bank has not identified the potential issue of the related-party debt and treated it as conventional third-party debt, there is an increased risk that borrower liquidity will be used, unexpectedly, to pay a significant portion (or all) of that related-party debt ahead of schedule. In that instance, the liquidity cushion will have been eroded, impacting the financial condition of the company.

Red Flags During Banks' Financial Statement Analysis

When making your Statement Studies financial ratios comparisons, if your spreads are consistently significantly outperforming the RMA averages, it might be worth re-visiting your spreading standards to ensure they’re matching up with the RMA spreading guidance. If you’re regularly spreading financials in a manner different than other banks, you may be developing a false sense of security.

And what if the spreads consistently appear to be materially worse than the Statement Studies ratios? It might not be just a simple case of weak financials. The results could be telling you that your borrower’s reliance on line items that have a more questionable likelihood of converting to cash or a greater possibility of the acceleration of amounts due to related parties is higher than the industry. If the latter turns out to be the case (high percentages of amounts due from related parties and/or higher percentages of amounts due to related parties), there are ways to structure around those risks—assuming the underlying company and the related parties are each financially healthy. In fact, getting that information on the related parties can even lead to new business opportunities.

RMA Financial Statement Spreading Guide

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Income Statement Spreading Tips:

Remember that certain expenses may appear in various parts of the Income Statement and need to be identified and then spread on the appropriate line.

For example:

  • Accounting standards for homebuilders allow them to include interest expense for homes that have been sold in cost of goods sold (COGS). If you have not identified and broken that amount out of COGS and included that figure in with interest expense, you will be grossly understating interest expense for the company. Naturally this will materially affect ratios such as EBIT/interest coverage.
  • Depreciation and amortization can be found in various segments of the business. Make sure you are capturing all the depreciation and amortization expenses when spreading the Income Statement.
  • To the extent you are able to identify officers’ compensation and break-out that figure in the Income Statement spreads, that information is tremendously helpful in identifying to what extent salaries may include a discretionary component. See “Getting Behind the Numbers, Part 4 - Profitability, It’s Not Just the Bottom Line.” The RMA Journal, November 2004, pp. 58–60.

This is not an all-encompassing list, but it may help prompt the thought process when spreading the Income Statement. As with the Balance Sheet, spreading the Income Statement is not simply a mechanical process. It requires thinking through the implications about how certain line items are spread and how that affects the financial ratios generated.


Spreading financial statements to RMA banking industry guidance:

  • Is necessary to make accurate comparisons between the company that you’ve spread and RMA Statement Studies Ratios.
  • Signals potential issues that should be addressed in the underwriting and structuring of a loan.
  • Should not be a mechanical exercise on autopilot, every financial statement that is spread must be thought out. The accountant’s footnotes must be read, schedules must be reviewed, questions may have to be asked, and a logical thought process compatible with the banking industry’s approach to spreading should be followed. If an exception is made, the rationale should be well supported and explained so the credit approver is aware of the change.

The credit analysis process starts with:

  1. Obtaining a quality level of financial information commensurate with the transaction size and risk
  2. The uniform spreading of that information to RMA guidance 
  3. An assessment of the results of those spreads relative to peer companies through use of the Annual RMA Statement Studies.

Together, these three actions form the basis that help a bank conduct its financial statement analysis of a potential commercial borrower.

When financial statements are not spread in accordance with RMA spreading guidelines, credit approvers are not provided with all the information they need to make the best informed credit decision. The RMA guidelines surface what might have been otherwise overlooked risks. Once identified, those potential risks can then be factored into credit decisioning and loan structuring and lead to more sound credit portfolio.

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