Show us the money, says CMS

Sunday, June 3, 2007

WASHINGTON - CMS released last week the measures that it will use to evaluate the financial stability of suppliers who submit bids under national competitive bidding.

"CMS and its Competitive Bidding Implementation Contractor (CBIC) will evaluate each bidder's financial documentation to determine whether the supplier will be able to participate in the program and maintain viability for the duration of the contract period," the agency stated.

The financial measures, which CMS described as "standard accounting ratios commonly used to evaluate financial health," are:

* Current ratio = current assets/current liabilities
* Collection period = (accounts receivables/sales) x 360
* Accounts payable to sales = account payable/net sales
* Quick ratio = (cash + accounts receivable)/current liabilities
* Current liabilities to net worth = current liabilities/net worth
* Return on sales = net sales/inventory
* Sales to inventory
* Working capital = current assets - current liabilities
* Quality of earnings = cash flow from operations/(net income + depreciation)
* Operating cash flow to sales = cash flow from operations/(revenue - adjustment to revenue)

CMS and the CBIC will also use supplier credit histories in evaluating their financial health.