Free Practice Questions for CIPS L4M4 Exam

The balance sheet (statement of financial position) shows assets, liabilities, and equity at a point in time. The profit and loss account (income statement) shows revenues, expenses, and profit over a period. These are the two core statements used to assess supplier stability and performance. The cash flow statement is useful but supplementary, while chairman’s statements are narrative, not financial records. Responsible sourcing emphasises using balance sheet and P&L analysis to evaluate supplier financial strength, ensuring continuity of supply and risk management.

In a restricted tender process, suppliers are pre-qualified through a selection process before being invited to submit tenders. This approach is suitable when there is a need to ensure that only capable suppliers are considered, often due to the complexity or high value of the procurement. It is not limited to situations with few suppliers, and direct negotiations typically occur after tender submissions, not before. Contracts are awarded based on multiple criteria, not solely on price.

Explanation

A cash flow statement shows the money coming in and out. This would therefore show whether a supplier has enough money coming in, to be able to pay some of it out to a subcontractor.

P&L and Balance Sheets look more broadly at finances, rather than saying what's physically in the bank at a specific given time.

Do learn the difference between these three financial documents for the exam.

Balance Sheet: Explanation, Components, and Examples (investopedia.com)

Profit and Loss Statement Meaning, Importance, Types, and Examples (investopedia.com)

Cash Flow Statement: How to Read and Understand It (investopedia.com)

Public sector organisations are required to demonstratevalue for money, transparency, and fairnessin the use of public funds. Competitive tendering ensures procurement decisions are objective, auditable, and based on pre-defined criteria. While competition and market access are benefits, the primary obligation is to ensure taxpayer money is spent responsibly and ethically. Competitive tendering reduces the risk of corruption, bias, and inefficiency, supporting accountability to stakeholders and the public. Ethical and responsible sourcing in the public sector is therefore closely linked to transparent procurement processes and regulatory compliance.

Explanation

"Meet current liabilities" is a posh way of saying "can you pay your bills". You're therefore looking for a liquidity ratio- a ratio that looks at assets vs liabilities (i.e. money in the bank vs money owed out). The Acid Test is a liquidity ratio. It's sometimes called the 'quick ratio'. Both terms come up on the exam. The other options are financial ratios but aren't for liquidity.

Explanation

The Pareto Principle can be used when considering changing a supplier. It helps to categories suppliers by how strategically important the item is that they provide to the business.

Explanation

The correct answer is 'yes- because a low credit rating would indicate the supplier is financially un-stable'.

The two options beginning with no should automatically be discounted. The other option is incor-rect because credit ratings are private and would therefore not affect reputation.

Explanation

total life-cycle costs include; acquisition costs, maintenance and training.

Added value and functional fit are quality criteria that should also be evaluated when selecting a supplier, but do not fall under total life-cycle costs.

Note: total life cycle costs and whole life asset management are the same thing. You may see both terms used in the exam. I think CIPS is moving more towards Whole Life Asset Management now as the preferred vocabulary but they're the same thing.

Explanation

You should investigate automatically low tenders by clarifying the bid with the supplier. It could be they have misunderstood the requirement. Or the bid could be genuine and they can really provide best value for money. But without enquiring, you just don't know.

Porter's Five Forces and the STEEPLED model are valuable tools for analyzing supply markets. These models help identify external pressures and market dynamics, supporting responsible sourcing by enabling buyers to understand and respond to market influences effectively.