FTL821D. QUESTION 1 (25 marks).

Chapter 2A (Financial Statements Analysis) As a procurement officer, knowing how to analyze the financial statements of a prospective supplier is paramount. This can be done with the help of the following critical questions. Keep in mind that when you are to pick a prospective supplier, you would be interested in your demands being met on time. Think about ordering certain materials (for example, stationeries). Any delay beyond the agreed delivery period would negatively impact your entitys operations.

The critical questions are as follows:

1. How liquid is the prospective supplier? Will it be able to meet its bills as they become due?

2. How has the prospective supplier in question financed its assets?

3. How efficient has the prospective suppliers management been in utilizing its assets to generate revenue?

4. Has the prospective supplier in question earned adequate returns on its investments, i.e. from putting its assets to use?

Assume that your entity has just issued a Request for Quotations (RFQs). The RFQs is for the supply of stationaries for your entity.

Please answer the following questions in the context in which they have been asked. Required: Strictly, all answers should be presented in bullets form!

Marks 1.1. Pick two suppliers or entities of your choice which are in the industry of supplying stationeries and assess their financial statements based on the four questions outlined above. For each supplier, use two ratios and present your answers in the following format:

i. The ratio category for which the two ratios belong. (4 x marks)

ii. What does such specific ratio category measure? (4 x marks)

iii. Based on your calculations as per the two chosen ratios under each ratio category, which one of the two chosen suppliers would you recommend to your entity and why? (12 x marks) 20

1.2. Apart from analyzing the financial statements, what else would you recommend for consideration before a final decision is made between the two prospective suppliers? (5 x marks) 5 Total marks 25

NB: Keep in mind that the two suppliers should be in the same industry.

The annual financial statements should not be more than two years old.

The link to each chosen entitys financial statements should form part of your references.