Table of Contents
The Basics of Financial Analysis
Supplier financial analysis has always been a vital part of the purchasing function. Meeting today's demands of increased competition domestically and internationally, developing strong strategic partnerships and alliances with suppliers, the focus on total supply chain management, and integrating purchasing decisions with the organization's strategic and operational goals, makes the process even more critical. The ongoing scrutiny of a supplier's financial stability and prospects for future performance is integral to strategic purchasing, and is crucial to averting financial disaster (see box on page 2).
Locating Complete Financial Information
Although annual and SEC reports provide a comprehensive financial picture, these sources alone cannot deliver a truly accurate account of an organization's status. A thorough assessment can only be accomplished by gathering information from a variety of sources. (For how to locate sources, see the boxes on page 8 and 10.)
Financial Ratios: Performing Trend Analyses
From the entries on the balance sheet and income statement, you can begin analyzing an organization's performance by calculating financial ratios. Every business produces an array of financial ratios that can be used for daily, weekly, or monthly monitoring to make sure all key activities are on track (see box). Financial ratio analysis is a process of comparisons between various balance sheet and income statement items, particularly between current and past data from financial statements.
Steven Clayborn, CPCM, C.P.M.
Steven Clayborn serves as a team leader in the Westinghouse Savannah River Company procurement department, where he is responsible for financial planning and training. He has over twelve years experience in negotiating and administering multimillion-dollar environmental and logistical support services contracts in both the U.S. and Latin America. Mr. Clayborn currently serves as vice president of NAPM—Augusta Area, Inc., and serves on the Metro Augusta Chamber of Commerce Small Business Council. Mr. Clayborn also presents seminars and workshops tailored to small businesses on effective negotiations and purchasing. He holds professional certifications as a Certified Professional Contracts Manager (CPCM) and Certified Purchasing Manager (C.P.M.). Mr. Clayborn has a BBA in economics, and an MBA from Augusta State University.
- Bandler, James. How To Use Financial Statements: A Guide to Understanding the Numbers, Irwin Professional Publishing, 1994
- Costales, S.B. and Szurovy, Geza. The Guide to Understanding Financial Statements, Second edition, McGraw Hill, Inc., 1994
- Fuld, Leonard M. Competitor Intelligence: How to Get It; How to Use It, John Wiley & Sons 1995
- Gentry, James K. Reading Organization Financial Statements, FACSNET
- NAPM Insights, November 1995, "Adding It All Up"
- NAPM Insights, September 1995, "It All Adds Up"
- NAPM Insights, January 1992, "Understanding Financial Statements"
- Trennepohl, Gary L. Financial Analysis, FACSNET
- Understanding The Bottom Line, Second edition, Career Press, 1993
FOR FURTHER READING
- NAPM InfoEdge, October 1995, What to Do When a Supplier Is in Trouble
- Purchasing Today®, November 1996, "Mining the Internet for Supplier Financial Information"
- Finkler Steven A. Finance and Accounting for Non-Financial Managers, Prentice-Hall, Inc., 1992
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