Procurement is a tough job; you’re responsible for finding vendors who meet needs within budgets. One of its key functions is to help evaluate the long-term viability of potential partners. In large, public companies, vendors can sign contracts for millions of dollars over several years to set up and manage complex software environments, construction or other outsourced projects. It’s important to do the necessary due diligence on potential partners before you sign on the dotted line. Did you know that 10-K data can help you with metrics that matter? Let’s discuss how we can use public filing data to evaluate publicly-owned vendors for continued success.
WHAT IS SUCCESS MADE OF?
Every company is different but a majority of businesses do believe that vendors need to demonstrate a foundation of long-term success in order to deliver on a large-scale project. In 10-K data, success can take on a few different complexions. Here are some KPIs to use for evaluation:
Gross Profit Margin: Do you know how much a vendor profits from each project? Gross margin can provide a lens into how much markup (or margin) is on top of the product or service they provide. Compare margin to cost and see if you’re being charged fairly.
Acid Test Ratio: This ratio is also called the quick ratio, and measures a company’s short-term assets to cover immediate liabilities. Calculate it like this:
The ratio should exceed 1, indicating that all liabilities (except for inventory) can be covered. The liquidity-coverage ratio is also a way to benchmark this viability, but doesn’t include non-cash assets.
Commitments and Contingencies: Often, these are buried in the management footnotes. Commitments and contingencies indicate the commitments that a company is on the hook for. They can include lawsuits, debts, or outstanding, unresolved conflicts that may become issues further down the road. The footnotes can also tell you the size of these lawsuits and their ramifications.
Debt ratios: The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The more debt compared to assets a company has, which is signaled by a high debt ratio, the more leveraged it is and the riskier it is considered to be. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble.
This is just the beginning. Oftentimes, vendors will say whatever they can to engage in a project. But it’s nice to know that as a procurement professional, you don’t have the guess at what’s going on behind the scenes with a new relationship. Their data is public, and with a tool like idaciti, it’s easy to find what you need to know.
For more insights on how 10-K data can power the work you do on a daily basis, contact us or schedule your demonstration today.