One of the more challenging aspects of your CIPS studies involves interpreting supplier financial records. This is incredibly important for any procurement professional as it helps to understand and be reassured as to the viability of a supplier’s financial resources. Here, we explain how you can find out more.
Many students of procurement get a little overwhelmed when it comes to understanding financial statements. It could be something to do with the numerical calculations required, but it also might simply be because financial accounts need some careful explanation.
For your CIPS studies, you need to know about a supplier’s Income Statement (the account that summarises all of the income and expenditure for the accounting period) and a supplier’s Balance Sheet (the account that provides a snapshot of the value in the company in terms its assets, liabilities and shareholder funds). These two accounts serve different purposes, but when reviewed together they provide a great overview.
To understand these accounts fully, you need to undertake some analysis on key areas of financial performance. This is referred to as ratio analysis. For CIPS students, this includes profitability (how much surplus the day-to-day operations are creating), liquidity (the degree to which the company can pay its short-term liabilities) and gearing (the extent of long-term debt the company carries).
To help, we have created the following YouTube clips for our learners:
Understanding the Income Statement
Understanding Profit and EBITDA
Please feel free to look up these resources and use them for your own CIPS studies. We hope you find these useful and please remember to ‘like’ each video and subscribe to our YouTube channel @Cordie_A1 for further relevant CIPS revision clips.