What term describes the use of financial ratios based on a supplier's financial statements?

The correct term that describes the use of financial ratios based on a supplier's financial statements is liquidity ratio analysis. This analysis focuses on assessing a supplier's ability to meet its short-term financial obligations. By examining liquidity ratios, such as the current ratio and quick ratio, procurement professionals can gain insights into the financial health of a supplier, ensuring that they are capable of fulfilling their contractual commitments without facing undue financial stress.

Understanding liquidity is crucial for organizations when they evaluate potential suppliers, as it helps mitigate risks associated with supply chain disruptions that could occur if a supplier encounters cash flow problems. Financial ratios reflect the supplier's short-term viability and stability, which directly influences procurement decisions.

Other options listed may represent financial metrics used in a broader analysis of a supplier's performance but do not specifically focus on assessing their short-term liquidity and financial stability in the same way that liquidity ratio analysis does.