PROCUREMENT FINANCE

Role & Scope of Procurement Finance & Inventory Management

Role & Scope of Procurement Finance & Inventory Management

Question 1: Supplier's Financial Ratios & Its Analysis

Current Ratio

Current Assets

2012

2011

Stock (Inventory)

$ 1, 528 $ 1, 180

Cash

$ - $ 251

Debtors (Receivables)

$ 1, 717 $ 1, 238 Total Current Assets $ 3, 245 $ 2, 669

Current Liabilities

 

 

Creditors (Payables)

$ 1, 020 $ 1, 088

Bank (Overdrafts)

$ 690 $ 456 Total Liabilities

$ 1, 710 $ 1, 544

Current Ratio

1.898

1.729

The current ratio of supplier reveals that they have a sound liquidity position, as the current ratio of the firm is around 1.8. This ratio is calculated by dividing current assets to current liabilities, where, the current ratio of chosen supplier increased from 2011 to 2012 that shows the liquidity of the firm has increased during the year, i.e. by almost 10 percent. The reasons behind this increase is the decrease in payables and boost in receivables as well as inventory, however, the cash of the firm in 2012 has become zero. Increase in inventory as well as receivables are associated with the boost in sales, however, decrease in cash might be the reason of in-hand cash shortage, which will be evaluated in debtors and creditors ratio. Thus, the overall current ratio of the selected supplier represents a strong position of the firm to cover its obligations through its short term assets.

Quick Ratio

Current Assets

2012

2011

Cash

$ - $ 251

Debtors (Receivables)

$ 1, 717 $ 1, 238 Total Current Assets $ 1, 717 $ 1, 489

Current Liabilities

 

 

Creditors (Payables)

$ 1, 020 $ 1, 088

Bank (Overdrafts)

$ 690 $ 456 Total Liabilities

$ 1, 710 $ 1, 544

Current Ratio

1.004

0.964

Quick ratio of the suppliers also provides similar analysis i.e. the liquidity position of the firm is quite sound. The acid ratio of the chosen suppliers is calculated by dividing the quick assets of the firm (cash and receivables) to the current liabilities (payables and bank overdrafts). The calculations of this ratio clearly represent that the quick ratio of the firm has increased from 2011 to 2012, which is mainly because of the increase in quick assets. Though the current liabilities of the company have also increased during the year, but the increase in quick assets is higher in proportion as compared to boost in current liabilities, i.e. current liabilities increased by 11% but on the other hand quick assets are increased by 22%, which means the quick assets of the firm are increased almost by 10% more than current liabilities. The reason behind this higher increase in quick assets is 39% increase in the receivables of the firm, which might be the reason of better collection processes. Thus, it can be stated that the supplier is well positioned to pay off its current obligations even through its quick assets, thereby having sound liquidity position.

EBITDA

 

2012

2011

Net Operating Profit

$ 716 $ 468

Depreciation & Amortization

$ 179 $ 78

EBITDA

$ 895 $ 546

Revenues

$ 8, 950

$ 7, ...