You have recently been appointed as the Procurement lead role on the cross functional team at Alset conducting market research to source a new miniature data projector - a component in a new line of Alset multimedia device branded SPARKi's. The SPARKi combines the two functions of tablet PC and smartphone

SUPPLIER FINANCIAL DATA

The team also gathered financial data for each supplier. While the team believes the data for the Aust and NZ suppliers to be reliable from their most recent audited annual reports, several assumptions and estimates had to be made regarding the Taegeuk Nangja and Nadeshiko Tech. Neither company are required to provide financials by legislation, nor are completely compliant with Australian Accountancy law. The team had to convert Japanese currency into Australian dollars, and the Korean exchange rate calculations were inconsistent. In some cases, the desired figures were not available, or the supplier showed no interest in providing the team with the requested information. In particular, this was an issue with Nadeshiko Tech. The tables below summarises selected supplier financial data to the best of your knowledge today.

Selected Supplier Balance Sheet Data (Australian Dollars - $ in millions) For Period Ending June 2022

Taegeuk Nangja	Taegeuk Nangja	FernFuel	Nadeshiko Tech	Matildas
ASSETS
Cash	$54	$37	$96	$85
Marketable securities	$28	$8	$122	$104
Accounts receivable	$130	$52	$890	$381
Inventories	$184	$36	$720	$170
Total current assets	$396	$133	$1,828	$740
Investments at equity	$96	$21	$739	$70
Goodwill	$80	$20	$300	$145
Total investments and other assets	$176	$41	$1,039	$215
Property, plant, and equipment	$313	$86	$1,612	$420
TOTAL ASSETS	$885	$260	$4,479	$1,375
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$160	$74	$1,067	$273
Taxes due on income	$52	$18	$253	$70
Accrued payroll and employee benefits	$139	$14	$264	$210
Total current liabilities	$351	$106	$1,584	$553
Long-term debt	$123	$12	$876	$200
TOTAL LIABILITIES	$474	$118	$2,460	$753
Shareholders' equity	$411	$142	$2,019	$622
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$885	$260	$4,479	$1,375

Statement of Income Data (Australian Dollars - $ in millions) Year Ended June 2022

	Taegeuk Nangja	FernFuel	Nadeshiko Tech	Matildas
Net sales	$1,528	$475	$5,602	$2,056
Cost of goods sold	$1,298	$328	$4,482	$1,378
Selling, general, and administrative expenses	$169	$66	$500	$370
Interest expense	$49	$6	$438	$100
Costs and expenses	$1,517	$400	$5,420	$1,848
Income before income taxes	$11	$75	$182	$209
Estimated taxes on income	$4	$23	$36	$58
NET INCOME	$7	$53	$146	$150

Question:

While this case assumes that the cross-functional team visited five suppliers, organisations often perform a preliminary financial risk analysis to identify the suppliers that may not warrant further consideration due to excessive financial risk. Conduct a preliminary financial analysis as per the Supplier Financial Analysis tool (attached below)

supporting documents:

Supplier Financial Analysis Worksheet

Purchasers assess supplier financial health for several reasons. The most important reason involves managing supply base risk. The analysis may highlight difficulties that will interfere with the smooth and timely flow of material. A supplier may be experiencing capacity constraint problems, have difficulty meeting its payables, have too many receivables, have poor inventory management as revealed by low inventory turns, or have cash flow problems as noted by current liabilities exceeding current assets.

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 international 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 industry averages, which is likely when a purchaser has collected data from many suppliers or can refer to market intelligence demonstrating the norm for the industry.

Selected Financial Ratios

Market Share

Asset Utilization:

Asset Turnover = Sales/Assets

Inventory Turnover = Cost of Goods Sold/Average Inventory

Receivable Days = Accounts Receivable/Sales X 365

Payable Days = Accounts Payable/Sales X 365

Capitalization:

Quick Ratio = (Cash + Market Securities + Accounts Receivable)/ Current Liabilities

Leverage = Assets/Equity

Current Ratio = Current Assets/Current Liabilities

Return on Equity = Net Income/Equity

Long-term Debt to Equity = Long-term Debt/Equity

Interest Coverage Ratio = Earnings Before Interest and Taxes/Interest Expenses

Profitability Ratios:

Contribution Margin = (Sales - Variable Cost)/Sales

Profit Margin = Net Income/Sales

Ensure you conduct not only the ratio calculations, but your interpretation of the data should be within the text of the answer