SourcingApps Financial Analysis

Payment Terms Calculators for Discount  Extended Terms

Financial Data for Financial Analysis  

for Solvency Ratios

for Leverage Ratios

for Profitability Ratios

for Z-Score Assessment

SourcingApps Payment Discount Calculator

Is an early payment discount worth taking?

Calculate the annual percentage rates and annual earnings on savings when a buyer takes the early payment discount offered by a seller.
 

SourcingApps Extended Terms

What is the financial benefit of extending payment terms?

Perform a Financial Ratio Analysis for new suppliers where there are significant dollars; critical technologies; alliances or partnerships. Financial analysis assists in the management of the business risk associated with close linkages between buyers and sellers.
 

SourcingApps Financial Source Information

Data  input document for all financial ratio and Z-score calculations.

Perform a Ratio and Z-Score analysis for new suppliers where there are significant dollars; critical technologies; alliances or partnerships. Financial analysis assists in the management of the business risk associated with close linkages between buyers and sellers.
 

SourcingApps Financial Solvency

Eight ratios describe Solvency

1. Quick Ratio is also known as the Acid Test Ratio. [Quick Ratio = (Cash + Receivable) / (Current Liabilities)]. It measures the ability to meet current liabilities. A 1:1 ratio indicates that the business in a liquid condition. A .25 :1 ratio is concerning.

2. Current Ratio is defined as (Current Ratio = Current Assets / Current Liabilities). It measures the ability to meet current liabilities. A 2:1 ratio is considered normal. A 1:1 ratio is considered appalling.

3. Current Liabilities to Net Worth is defined as (Current Liabilities to Net Worth = Current Liabilities / Net Worth) A ratio less than or equal to 50%) is desireable. 67% or more is very undesirable.

4. Current Liabilities to Inventory  is defined as (Current Liabilities to Inventory = Current Liabilities / Inventory). It measures a firms reliance on selling inventory to pay its current liabilities . A reasonable figure  is 250% (2.5 to 1) for industrial companies.

5. Total Liabilities to Net Worth is defined as (Total Liabilities to Net Worth = Total Liabilities / Net Worth). It is also know as Total Debt to Equity. This ratio measures the amount of assets bought with investors' money and the amount that was purchased with creditors' money. The standard is 61% (.61 to 1) the larger the ratio the more debt money used and the greater a firms difficulty in meeting its financial obligations.

6. Fixed Assets to Net Worth is defined as (Fixed Assets to Net Worth = Fixed Assets / Net Worth). This ratio measures liquidity by comparing "fixed" assets with "fixed" capital. Therefore smaller is better. Greater than 75% (.75 to 1) should merit caution.

7. Days' Sales Outstanding  is also known as Average Collection Period. It is defined as (Days' Sales Outstanding = Accounts Receivable x 365 / Annual Sales). The ratio best expresses the quality of a firms account payable. For Net30 terms Days' Sales Outstanding of between 35 days and 55 days is normal.

8. Inventory Turnover is defined as (Inventory Turnover = Cost of Goods Sold / Inventory) and measures how fast inventory is turned over.

SourcingApps Financial Leverage

Nine ratios describe Leverage. They all are an indication of how a firm gets its operating funds..

1. Collection Period is defined as (Collection Period = Accounts Receivable / Sales X 365). It is measured in days. If the collection period is in excess of 40 days for Net30 terms it signals slow-turning receivables and hence dependence on other sources for operating funds.
2. Sales to Inventory is defined as (Sales to Inventory = Net Sales / Inventory) and measures how many times inventory is turned. While there is no published standard here, the higher this turnover the more readily operating funds will be coming from sales rather than say debt.
3. Assets to Sales is defined as (Assets to Sales = Total Assets / Net Sales). The lower this ratio the better a firm is at utilizing its assets.
4. Sales to Net Working Capital is defined as (Sales to Net Working Capital = Net Sales / Net Working Capital). This ratio is highly variable by industry, however a recent industrial composite is 8 to 1.
5. Accounts Payable to Sales is defined as (Accounts Payable to Sales = Accounts Payable / Net Sales). This ratio measures payments to suppliers. Lower is better than higher inasmuch as a firm does a good job of managng its payables.
6. Debt to Equity is defined as (Debt to Equity = Total Liabilities / Equity) also known as Debt to Net Worth. It measures the amount of long term protection available to creditors, stockholders or any other entity able to assess a claim against a firm. When this ratio moves beyond 3:1, the firm is highly leveraged.
7. Current Debt to Equity it defined as (Current Debt to Equity = Current Liabilities / Equity). It measures the amount of immediate protection available to creditors, stockholders or any other entity able to assess a claim against a company. A ratio over 1 could signal serious trouble for most industries.
8. Interest Coverage is also known as Times-Interest-Earned Ratio and is defined as (Interest Coverage = Pretax Income + Interest Expense / Interest Expense). This ratio calculates the number of times a firms interest is covered by earnings. It is best if this this ratio is over 3.
9. Debt Services is defined as (Debt Services = Pretax Income + Interest Expense + Depreciation / Interest Expense + Principle Due in Next Year). It measures to what extent debt services are covered. A ration in the neighborhood of  2 is acceptable. Highger than 2 is better than lower.

SourcingApps Financial Profitability

Four ratios are used to describe Profitability.

1. Return on Investment is also known as Return on Assets and Rate Earned on Total Assets. It is defined as (Return on Investment = Net Profit / Total Assets). It measures the earning power of the company's assets and thus the effectiveness of its management.
2. Return on Sales is also known as Profit Margin. It is defineds as (Return on Sales = Net Profit After Taxes / Net Sales). It measures the profit per dollar of sales. The higher this ratio the better able the firm is able to weather adverse business condition such as falling prices and rising costs.
3. Return on Equity also known as Rate Earned on Stockholders Equity and Return on Net Worth. It is defined as (Return on Equity = Net Profit / Equity). This ratio is as close as one can get on the true performance of a business.
4. Return on Invested Capital is defined as (Return on Invested Capital = Net Profit After Taxes/Long Term Debt + Equity). 

SourcingApps Z-Score Analysis

The Z-Score is a measure of a company's health and utilizes several key ratios for its formulation. The model was developed in the late 1960's by Edward I. Altman, professor of finance at New York University School of Business. The model incorporates five weighted financial ratios into the calculations of the Z-Score. Professor Altman continues to update the model's coefficients to reflect changing ways of conducting business. The coefficient values used in this SDS, Inc. Supplier Financial Analysis Notebook were published in 1993 in Professor Altman's book entitled "Corporate Financial Distress and Bankruptcy", 2nd edition Copyright 1993 by John Wiley & Sons, Inc. ISBN 0-471-55253-4. Prof. Altman has defined 5 variables that comprise the Z-score for public and private comapnies.

1. X1 Component of Z-Score is defined as (X1=Working Capital/Total Assets). The ratio of Working Capital to Total Assets is the Z-Score component which is considered to be a reasonable predictor of deepening trouble for a company. A company which experiences repeated operating losses generally will suffer a reduction in working capital relative to its total assets.
2. The X2 Component of Z-Score is defined as(X2=Retained Earnings/Total Assets). The ratio of Retained Earnings to Total Assets is a Z-Score component which provides information on the extent to which a company has been able to reinvest its earnings in itself. An older company will have had more time to accumulate earnings so this measurement tends to creates a positive bias towards older companies.
3. X3 Component of Z-Score is defined as (X3=Earnings Before Taxes + Interest/Total Assets).  This ratio adjusts a company's earnings for varying income tax factors and makes adjustments for leveraging due to borrowings. These adjustments allow more effective measurements of the company's utilization of its assets.
4. The X4 Component of Z-Score is defined as (X4=Market Value of Equity/Total Liabilities). This ratio gives an indication of how much a company's assets can decline in value before debts may exceed assets. Equity consists of the market value of all outstanding common and preferred stock. For a private company the book value of equity is used for this ratio. This depends on the assumption that a private company records its assets at market value.
5. The X5 Component of Z-Score is defined as (X5=Net Sales/Total Assets). This ratio measures the ability of the company's assets to generate sales. This ratio is not included in the Z-Score of a private company.

The Z-Score model for Public industrial companies is: Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0X5. A healthy public company has a Z >2.99; it is in the grey zone if 1.81 < Z < 2.99; it is unhealthy if it has a Z <1.81

The Z-Score model for Private industrial companies is: Z = 6.56 X1 + 3.26 X2 + 6.72X3 + 1.05X4. A healthy private company has a Z >2.60; it is in the grey zone if 1.1 < Z < 2.59; it is unhealthy if it has a Z <1.1.