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Entering into long term contracts with suppliers is one of the best risk mitigation for a high operating leverage company. True or False ?

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تم إضافة السؤال من قبل SAI ANIMESH KUMAR N , Senior Manager, Credit , Ahli United Bank
تاريخ النشر: 2016/02/18
Panagiotis Vamvakos
من قبل Panagiotis Vamvakos , Senior Category Manager , COSMOTE Group of Companies S.A

In general terms it is a true statement. The higher the operating leverage, the greater the potential danger for a forecasting error. As such, entering long lasting contracts with suppliers, especially key suppliers, is a way to reduce risk since there is a share of responsibility if operations do not perform as expected.

Moreover, entering into long term contracts, a firm may benefit from a supplier by having better pricing, improved payment terms, more accurate deliveries of raw materials and superior treatment as a customer. 

حسين محمد ياسين
من قبل حسين محمد ياسين , Finance Manager , مؤسسة عبد الماجد محمد العمر للمقاولات العامة

agree with the answers ..................................................

Ahmed Mohamed Ayesh Sarkhi
من قبل Ahmed Mohamed Ayesh Sarkhi , Shared Services Supervisor , Saudi Musheera Co. Ltd.

agree with expert answers above

 

Vinod Jetley
من قبل Vinod Jetley , Assistant General Manager , State Bank of India

True as long as there is sufficient future demand at current prices.

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