Procurement Managers Balance Sheet & Finance Ratios

A balance sheet is a statement of the assets, liabilities, and capital of a business or other organisation at a particular point in time, detailing the balance of income and expenditure over the preceding period. How many of you actually read a balance sheet better than your non-procurement colleagues? Below are the finance ratios that you need to keep in your back pocket.

People might sometimes assume that all procurement staff are accounting experts and this isn’t necessarily true. We just turn our skills to any area that we need to remain commercial. It’s useful to understand if required how to read a balance sheet in addition to reaching for a D&B report.
Liquidity and solvency Current ratio current assets / current liabilities
Acid test ratio (current assets – stock) / current liabilities
Gearing Net debt / EBITDA Net Debt / EBITDA
Bank leverage ratio (bank debt / net worth) × 100 = %
Fixed assets/net worth Fixed assets / net worth
Interest cover Interest cover (P&L) operating profit/interest charges
Interest cover (cash)  Cash Flow From Operations/interest charges
Effective net interest rate interest charges/interest bearing debt
Efficiency Return on capital employed (operating profit/capital employed) x 100 = %
Return on total assets (operating profit / total assets) × 100 = %
Sales / net working capital Sales / (Accounts Receivable + Inventory – Accounts Payable)
Working capital Debtor days (average debtors × no. of days in period) / turnover
Creditor days (average creditors × no. of days in period) / cost of sales
Inventory days (stock × no. of days in period)/ cost of sales
Days working capital Days Working Capital = Inventory Days + Debtor Days – Creditor Days
Profitability Gross margin (sales less cost of sales/turnover) × 100 = %
Operating margin (profit before interest and tax/turnover) × 100 = %
Growth rate (Turnover FYXX – Turnover FYXX-1) / Turnover FYXX-1