MGMT-6082 & INTERNATIONAL SOURCING MGMT-6082-(01-02)-21F Topic Specific Assignment #2 Module 05 - Chapter 09 Supplier Financial Analysis A supplier financial analysis is likely whenever a purchaser is attempting to reduce a pool of potential supply sources. If a supplier does not meet certain thresholds as defined by the purchaser, then the supplier will likely not move to the next level of consideration. Financial ratios are a key part of a supplier financial analysis. Of course, the key to a supplier financial analysis is a purchaser's ability to obtain reliable and complete financial data, which can be a challenge when evaluating closely or privately held corporations. Besides calculating and attempting to interpret the meaning of financial ratios, comparing ratio data can provide even greater insight into a supplier's financial condition. While no correct answers exist for financial ratios, a comparison of a supplier's ratios to published industry norms can help identify if further financial analysis is necessary. An analyst should also compare several years of supplier financial data, if available, to identify favorable or unfavorable trends. Another comparison involves comparing a supplier's ratios with specific competitors, which is likely when a purchaser has collected data from more than one supplier. Refer to the attached balance sheet and income statement figures from four possible suppliers: Kobold, Hancy, Tarret and LaRose Q1. For EACH of the four suppliers, calculate the following financial ratios and interpret these key financial ratios (refer to page 274 in your text - 7th Edition): A) Current ratio B) Debt to Equity ratio C) Return on equity D) Net profit margin E) Inventory turnover Q2. Indicate which supplier you would recommend as the strongest financially. Q3. Why? All INTERNATIONAL SOURCING Selected Supplier Balance Sheet Data (U.S. $ in millions) For Period Ending December 31, 2019 Kobold Hancy Tarnet LaRose $95.9 $35 $85 $54.3 $122.5 $9 $105 $27.7 $889 $45 $380 $174.5 $1057.7 $75 $165 $135.4 ASSETS Cash Marketable securities Accounts receivable Inventories Total current assets Investments at equity Goodwill Total investments and other assets Property, plant, and equipment $2,165.1 $164 $735 $391.9 $738.4 $21 $70 $95 $300 $40 $80.4 $145 $215 $1,038.4 $61 $175.4 $1,734.5 $125 $450 $412.5 TOTAL ASSETS $4,938 $350 $1,400 $979.8 MGMT-6082 INTERNATIONAL SOURCING W& Tarret LaRose $48 $35 $225 $125 $70 $48 $202 $139 Kobold Hancy LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $525.5 $11 Accounts payable $525.9 $75 Taxes due on income $245 $23 Accrued payroll and $484.2 $13.5 employee benefits Total current liabilities $1,780.6 $122.5 Long-term debt $1,243.5 $55 Shareholders' equity $1,913.9 $172.5 TOTAL LIABILITIES $4,938 $350 AND SHAREHOLDERS' EQUITY $545 $347 $241 $614 $165 $467.8 $979.8 $1,400 MGMT-6082 INTERNATIONAL SOURCING W& LaRose $1,355 $948.5 $250 Statement of Income Data (U.S. $ in millions) Year Ended December 31, 2019 Kobold Hancy Tarret Net sales $6,500 $550 $2,300 Cost of goods sold $5,500 $407.5 $1,495 Selling, general, and $475 $65 $570 administrative expenses Interest expense $300 $12 $65 Costs and expenses $6,275 $484.5 $2,130 Income before income $225 $65.5 $170 taxes Estimated taxes on $100 $28 $66.5 income NET INCOME $125 $37.5 $103.5 $55 $1,253.5 $101.5 $55 $46.5 MGMT-6082 & INTERNATIONAL SOURCING MGMT-6082-(01-02)-21F Topic Specific Assignment #2 Module 05 - Chapter 09 Supplier Financial Analysis A supplier financial analysis is likely whenever a purchaser is attempting to reduce a pool of potential supply sources. If a supplier does not meet certain thresholds as defined by the purchaser, then the supplier will likely not move to the next level of consideration. Financial ratios are a key part of a supplier financial analysis. Of course, the key to a supplier financial analysis is a purchaser's ability to obtain reliable and complete financial data, which can be a challenge when evaluating closely or privately held corporations. Besides calculating and attempting to interpret the meaning of financial ratios, comparing ratio data can provide even greater insight into a supplier's financial condition. While no correct answers exist for financial ratios, a comparison of a supplier's ratios to published industry norms can help identify if further financial analysis is necessary. An analyst should also compare several years of supplier financial data, if available, to identify favorable or unfavorable trends. Another comparison involves comparing a supplier's ratios with specific competitors, which is likely when a purchaser has collected data from more than one supplier. Refer to the attached balance sheet and income statement figures from four possible suppliers: Kobold, Hancy, Tarret and LaRose Q1. For EACH of the four suppliers, calculate the following financial ratios and interpret these key financial ratios (refer to page 274 in your text - 7th Edition): A) Current ratio B) Debt to Equity ratio C) Return on equity D) Net profit margin E) Inventory turnover Q2. Indicate which supplier you would recommend as the strongest financially. Q3. Why? All INTERNATIONAL SOURCING Selected Supplier Balance Sheet Data (U.S. $ in millions) For Period Ending December 31, 2019 Kobold Hancy Tarnet LaRose $95.9 $35 $85 $54.3 $122.5 $9 $105 $27.7 $889 $45 $380 $174.5 $1057.7 $75 $165 $135.4 ASSETS Cash Marketable securities Accounts receivable Inventories Total current assets Investments at equity Goodwill Total investments and other assets Property, plant, and equipment $2,165.1 $164 $735 $391.9 $738.4 $21 $70 $95 $300 $40 $80.4 $145 $215 $1,038.4 $61 $175.4 $1,734.5 $125 $450 $412.5 TOTAL ASSETS $4,938 $350 $1,400 $979.8 MGMT-6082 INTERNATIONAL SOURCING W& Tarret LaRose $48 $35 $225 $125 $70 $48 $202 $139 Kobold Hancy LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $525.5 $11 Accounts payable $525.9 $75 Taxes due on income $245 $23 Accrued payroll and $484.2 $13.5 employee benefits Total current liabilities $1,780.6 $122.5 Long-term debt $1,243.5 $55 Shareholders' equity $1,913.9 $172.5 TOTAL LIABILITIES $4,938 $350 AND SHAREHOLDERS' EQUITY $545 $347 $241 $614 $165 $467.8 $979.8 $1,400 MGMT-6082 INTERNATIONAL SOURCING W& LaRose $1,355 $948.5 $250 Statement of Income Data (U.S. $ in millions) Year Ended December 31, 2019 Kobold Hancy Tarret Net sales $6,500 $550 $2,300 Cost of goods sold $5,500 $407.5 $1,495 Selling, general, and $475 $65 $570 administrative expenses Interest expense $300 $12 $65 Costs and expenses $6,275 $484.5 $2,130 Income before income $225 $65.5 $170 taxes Estimated taxes on $100 $28 $66.5 income NET INCOME $125 $37.5 $103.5 $55 $1,253.5 $101.5 $55 $46.5