Board Topic: FAMAS spreads question
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Posted by: Anthony Toro Oct 31 2003, 01:01 PM
Analyzing income and cash flows is often done with FAMAS spreads. What are they and how are they used.

Posted by: loanuniverse Oct 31 2003, 01:39 PM

Famas is a software package used by creditors to analyze the financial statements of prospective borrowers and to keep track of current borrowers financial performance. It used to be made by a company called “Crowe Chizek”, but either the whole company or the product line was acquired by Moody’s.

I got to use this package in the late nineties and it was very good, in fact it did almost everything that the product that replaced it does now { the new product is called Moody’s financial analyst } and is pretty much the standard in most small and medium sized banks. There is another product called winfast that is used by a lot of banks, but it is not as well known. Of course by acquiring Famas, Moody’s was able to discontinue it and being able to sell their product instead.

Now how do all of these packages work?

These packages work by allowing you to ”spread” the financial statements. The borrower provides several years of financial information so that you can measure its financial performance, condition and ability to repay. However, all those things are hard to determine just by looking at the financials. First, you will need a pretty big desk to have all that information in front of you. Second, for every ratio you wanted, you would need to calculate it individually. Finally, you need to look at more than one ratio, but how does that ratio compares to the prior years in order to catch a trend.

FAMAS and all similar types of software allow you to do that. In order to work, the financial information in the balance sheet and income statement is entered into the software. This is done very carefully as all the accounts need to be entered in the right spot or more technically put “in the correct flow”. Once this is done, the software will calculate all sort of ratios and reports. Moody’s financial analyst will give you the option of creating about thirty reports. Personally, I only like to print 5, they are:

1- balance sheet actual and percentage = lets me know how the asset and funding mixture has changed along with the net worth.
2- Income statement actual and percentage = same as above, but I concentrate on changes in the cost structure {ie: expenses}
3- Detailed reconciliations = lets me know why and how changes happened in equity and working capital.
4- UCA cash flow = the measure of true inflows and outflows of cash in the company.
5- Detailed ratios = profitability, leverage, liquidity and activity ratios.

The newest versions of these types of software come with a built in database of industry averages from RMA {Risk Management Association} formerly known as “Robert Morris”. This is a company that puts together data on industries and you get to compare the borrower to the industry. This comparison is considered a minimum credit standard for some loans that are insured by the government and is a good practice to do it for all loans.

Well I think I rambled enough and need to get back to work from lunch so I suggest that you look up “Moody’s Financial Analyst” on Google to see if samples are available of these statements. I doubt that you will get information on FAMAS since it is a discontinued product that might still be in use on a few banks, but won’t be in a few years.

Hope this helped.

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