Using the financial capacity of bidders as a suitability criterion is a much underestimated tool to protect against default or even performance problems resulting from economic problems of the contractor. Particularly in the course of the current Corona crisis, the insolvency risk of many companies has increased, so that a review to this effect is particularly useful, but at the same time also to a large extent based on the long-term or financial performance of the bidder. strategic key figures and key figure systems should be carried out in order to exclude "pre-judgements" due to currently (operationally) poor key figures. After providing an overview of the conceptual basis in the first part of this series of articles, in this part we will look at how the economic performance of bidders can be determined transparently with the help of a consideration of various key figures.<\/p>\n
As the first part of this series of articles has shown, the review of a bidder's financial performance goes beyond the mere consideration of variables or individual key figures such as net income or the EBIT presented in the first article or. EBITDA beyond. Cash flow, which has already been explained, is also a liquidity-oriented variable that is only of limited use in determining whether a company z. B. an imminent risk of insolvency may exist or. What the long-term future holds for the company. In addition, in the case of small and medium-sized enterprises, such operating result figures are only available to a limited extent or. are rarely made transparent.<\/p>\n
Section 45 of the VgV provides that contracting authorities may, in particular, require the following for the purpose of verifying economic and financial standing:<\/p>\n
As evidence of the required economic and financial capacity of the candidate or tenderer, the contracting authority may, pursuant to Section 45 para. 4 VgV (as a rule) require the submission of one or more of the following documents:<\/p>\n
In order to avoid imposing unusually high requirements on bidders in terms of the documents they have to submit, the tests and criteria mentioned in the procurement law are used. Evidence, can be obtained precisely from the financial statements or. The balance sheet and income statement contained therein can be used to draw conclusions about the bidder's creditworthiness with the help of various key figures.<\/p>\n
In this context, it is important to provide evidence of unsuitable, because economically too weak or. identify insufficiently economically capable bidders on the basis of certain characteristics, while at the same time taking care to consider the various metrics in relation to each other and not in isolation from each other, in order to obtain an overall picture of economic or. financial performance of the bidder.<\/p>\n
As already explained in the first part of this series of articles, the balance sheet is a comparison of assets – divided according to their use of funds (assets) and the source of funds (liabilities) of a company or. Bidder – to a specific deadline.<\/p>\n
Warning lights should go on when looking at the balance sheet, especially if a bidder shows negative equity capital. Since both sides of the balance sheet – use of funds and source of funds – are always equal in size, this means that the company's reported liabilities do not include tangible assets or. assets in an equivalent amount. Annual shortfall or a loss in value of tangible assets u. a. in this case, have resulted in assets being worth less than the loans the company has to repay. To compensate for this imbalance, so that the valuations of the funds tied up in the company and the origin of the funds are equal, equity must assume a negative value. The company is over-indebted in the truest sense of the word. As a rule, lenders will sooner or later question the creditworthiness of the company, as their loans are no longer covered.<\/p>\n
So-called equity-replacing loans are a special case in this context. As a rule, they represent loans from a shareholder to his company, which, in the event of the company's insolvency, must be reclassified as equity by operation of law or. are subordinate to the loans of the other debt capital providers. If such loans exist, they should be included in the question of whether the company has sufficient equity capital as a contribution made by shareholders in order to avoid drawing incorrect conclusions about the company's ability to survive.<\/p>\n
Another interesting question is how the company's debt ratio is doing. The debt-equity ratio is a balance sheet ratio that provides information on the structure of the company's financing. It shows the extent to which the company is debt- or equity-financed. Is equity financed.<\/p>\n
Debt\/equity ratio: debt\/equity x 100<\/p>\n
z. B. 400.000 Euro \/ 200.000 Euro x 100 = 200<\/p>\n
A debt-equity ratio of 100% corresponds to a structure in which debt and equity are in balance; with a debt-equity ratio of 0%, the company would be fully equity-financed. If the debt-to-equity ratio is well over 100%, this means that the company's debt is a corresponding multiple of its own funds. Since depreciation and losses resp. Annual net losses are charged solely to equity, a company with high leverage is more likely to run the risk of negative equity in the event of a few bad fiscal years or. to be overindebted.<\/p>\n
As the previous comments in this series of articles have already made clear, there is a relatively high risk of erroneous conclusions when looking at and interpreting individual variables or key figures separately. For this reason, it is advisable to collect several key figures and thus to verify the economic and financial suitability of a bidder on the basis of the evaluation of several economic cornerstones. Cases in which such a holistic view is not possible due to a lack of information (for example, due to the fact that the bidder does not collect these ratios due to its small size) are discussed in more detail below.<\/p>\n
In order to assess the risk of insolvency, an evaluation and comparison of the following six key figures can be used in principle. 1 These are first collected and then offset against factors to obtain an aggregated figure on the basis of which it is possible to classify the bidder's risk of insolvency. The following explanations are particularly applicable to large companies where these key figures are actually available or are not available. can be easily claimed or taken from business reports.<\/p>\n
In total, for a comprehensive assessment of the current insolvency risk, the following six parameters must be determined or. are questioned by the bidder:<\/p>\n
From the balance sheet (directly ascertainable): Current assets, liabilities, total assets<\/p>\n
From the P&L (directly or indirectly ascertainable): Operating performance, cash flow before taxes, profit from ordinary activities (POA)<\/p>\n
The following section describes in detail how these figures are collected and which ratios can be calculated using them. These ratios are then used to form an aggregated ratio, the classification of which provides information on how well a bidder is positioned economically and financially, or. Whether it must be called even insolvency endangered.<\/p>\n
This first ratio shows the proportion of liabilities that can be repaid per year based on the cash flow. It thus illustrates whether the company is generating enough liquidity to service its own liabilities. If a company has no liabilities, this ratio (or. to determine an aggregated key figure) the cash flow before taxes itself is used. If cash flow before taxes is not reported, it can also be determined as follows: Cash flow = net income + non-cash expenses – non-cash income.<\/p>\n
The ratio shows how high the share of liabilities is in relation to total capital, i.e. how strongly the company is financed by borrowed capital. In the event that the company has no liabilities, the balance sheet total is used here.<\/p>\n
The ratio shows the relationship of current assets to operating assets. The operating performance is made up of sales revenue +\/- any changes in inventories of semi-finished and finished goods or. work in progress (in the case of manufacturing companies) + cash discount income + other ordinary income + own work capitalized. A high inventory level has a negative impact on the profitability of the business and can be seen as an indicator that the company is not (any longer) producing for the market, or. Too much current assets available in relation to sales.<\/p>\n
Profit from ordinary activities includes EBIT (earnings before interest and taxes) and net financial result. The ratio thus shows the return on assets. So net income plus taxes paid is divided by total assets.<\/p>\n
Net income plus taxes paid is determined by operating revenue (cf. also point 3) divided. The key figure illustrates the company's return on sales and thus provides information about the ratio of profit to sales.<\/p>\n
Finally, the operating performance itself is also divided by the balance sheet total. The greater the percentage of sales to total assets, the less capital is required to achieve a given rate of return.<\/p>\n
The following table shows a key figure system in which the key figures described above are compared with each other and added together to form an overall key figure.<\/p>\n
| Key figure no.<\/td>\n | Key figure Addresses<\/td>\n | Key figure<\/td>\n | Weighting factor<\/td>\n | Weighted ratio<\/td>\n<\/tr>\n | ||||||||||||
| 1<\/td>\n | Liquidity<\/td>\n | Cash flow \/ liabilities<\/td>\n | x 1,5<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| 2<\/td>\n | Indebtedness resp. Financing<\/td>\n | Balance sheet total \/ liabilities<\/td>\n | x 0,08<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| 3<\/td>\n | Inventory intensity or. Capital commitment<\/td>\n | Inventories (od.current assets)\/operating performance<\/td>\n | x -0,30<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| 4<\/td>\n | Total capital profitability<\/td>\n | Profit from ordinary activities\/total assets<\/td>\n | x 10,00<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| 5<\/td>\n | Return on sales<\/td>\n | Profit from ordinary activities\/operating performance<\/td>\n | x 5,00<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| 6<\/td>\n | Capital turnover<\/td>\n | Operating performance \/ Balance sheet total<\/td>\n | x 0,10<\/td>\n | ..<\/td>\n<\/tr>\n | ||||||||||||
| Sum<\/td>\n<\/tr>\n<\/table>\n All in all, on the basis of the various business performance indicators presented, or. the probability of insolvency of the company in question can be inferred on the basis of the weighted sum determined from this, which does justice to the claim that the economic performance indicators from the balance sheet and income statement should not be viewed in isolation from one another.<\/p>\n It should be noted, however, that the ratios collected can offset each other when compared in such a business ratio system, so z. B. a (too) high debt-equity ratio can be compensated by a good return on sales. In addition, it becomes clear that a very important indicator for the early detection of insolvency in the result from ordinary activities or. Its ratio to the total available capital respectively the ratio of the result of ordinary business activity to the operating performance (i.e. mainly the turnover) is. In addition, the exact weighting of the individual factors is, strictly speaking, also industry-dependent. Thus, z. B. a high indebtedness in the real estate industry is not to be seen necessarily as problematic, why in dependence on the industry also easy corrections and\/or. Adjustments of the mentioned weightings are conceivable.<\/p>\n Interpretation of key figures<\/h2>\nThe following table serves as a possible classification of the overall indicator determined as described above:<\/p>\n Allocation table:<\/p>\n
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