Gartner Research

Analysis of Vendor Cash Flows Helps Predict and Mitigate Risk of Vendor Obsolescence

Published: 12 May 2014

ID: G00263515

Analyst(s): Gary Spivak


The cash-flow statement offers critical information to identify the risk of vendor insolvency or obsolescence. IT vendor management leaders and other technology buyers should examine vendor financial statements to help decide when to begin to seek alternative providers.

Table Of Contents
  • Key Challenges



  • Evaluate Your Vendors' and Service Providers' Financial Health
  • What Is the Cash-Flow Statement?
    • Three Parts to the Cash-Flow Statement
  • Cash Flow From Operations
    • Analyze the Vendor's Cash Flow From Operations to Assess Its Financial Health
    • Evaluate Depreciation and Amortization Expenses
    • Examine the Stock-Based Compensation Expense
    • Appraise Changes in Operating Assets and Liabilities
    • Focus on Changes in Deferred Revenue
    • Calculate Cash Flow From Operations as Percentage of Revenue
    • Analyze the Vendor's Cash Flow While Also Considering Its Cash Balance to Determine Its Ability to Remain in Business
    • Assess the Quality of Cash Flow From Operations
  • Cash Flow From Investments
    • Determine If the Company Is Investing Adequately in Its Future
  • Cash Flow From Financing
    • Determine the Company's Need for and Ability to Raise Capital
  • Parting Thoughts

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