How can you use financial metrics to evaluate your business partners and suppliers?

2 Profitability and margins

Profitability and margins are measures of how efficiently a partner or supplier uses their resources to generate income. They show the difference between the revenue and the expenses, and how much of the revenue is left as profit. You can use profitability and margins metrics to evaluate the financial health and stability of your partners and suppliers, and their ability to cope with fluctuations and risks. For example, you can look at the net profit, the gross profit margin, the operating profit margin, and the return on assets of your potential partners and suppliers.

3 Liquidity and solvency

Liquidity and solvency are aspects of how well a partner or supplier can meet their short-term and long-term obligations. They show the availability of cash and other assets to pay off debts and liabilities, and the ratio of debt to equity. You can use liquidity and solvency metrics to assess the risk and reliability of your partners and suppliers, and their ability to survive and grow in the long run. For example, you can look at the current ratio, the quick ratio, the debt-to-equity ratio, and the interest coverage ratio of your potential partners and suppliers.

5 Innovation and differentiation

Innovation and differentiation are elements of how a partner or supplier creates value and stands out from the competition. They show the level of creativity, originality, and uniqueness of their products or services, and how they meet the needs and expectations of their customers. You can use innovation and differentiation metrics to appreciate the vision and strategy of your partners and suppliers, and their ability to adapt and evolve in a changing market. For example, you can look at the research and development spending, the patent portfolio, the customer retention rate, and the brand recognition of your potential partners and suppliers.

6 Alignment and collaboration

Alignment and collaboration are aspects of how a partner or supplier fits with your business goals and values. They show the degree of compatibility, trust, and communication between you and them, and how they contribute to your mutual success. You can use alignment and collaboration metrics to determine the suitability and synergy of your partners and suppliers, and their ability to work as a team and solve problems. For example, you can look at the strategic alignment, the cultural fit, the feedback frequency, and the conflict resolution of your potential partners and suppliers.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?