Sainsbury plc uses different types of financing such as borrowing, bank loans, term loans and equity funds to acquire needed cash.
Long term finance is usually paid off after a long period of time such as 10-25 years. On the other hand, short term finance needs to be paid off within a year. Long term finance is acquired to fulfil a company's long-term funding needs whereas short term funds are used to finance company's working capital. Sainsbury relies on short term bank loans, bank overdrafts and short term notes for short term financing, and relies on equity shareholder's funds, medium term notes, finance leases and loan stock for long term financing. The company relies on too much loan capital, which is mostly high interest bearing in the long-term. High payments of interest reduce the company's profits. Also, high loan capital weakens a company's credit worthiness and increases risk in future.
Equity financing carries high cost because it is more risky for investors. However, equity financing can be used to generate huge capital and payment of dividends is not compulsory. On the other hand, debt financing requires fixed payment of interest compulsorily. Businesses cannot rely on one source of finance rather they endeavour to maintain a mix of debt and equity capital. Companies with high debt capital are considered as more risky and therefore, the cost of capital will rise as creditors will demand more return i.e. high interest because of high risk involved. High risk, high return for investors and high cost for the company.
Working Capital Management- Sainsbury plc
Working capital can simply be defined as the amount of funds in excess of current assets over current liabilities. It is basically the sum of money which is left after keeping aside the funds that are to be paid off to short term creditors. Working capital is used to finance a company's short term business needs and expenditures Working capital has two major elements viz. the current assets and the current liabilities. It can be mentioned as:
Working capital = current assets-current liabilities
In order to analyse a company's working capital management, it is useful to calculate ratios such as current ratio, quick ratio, receivable turnover ratio and stock turnover ratio (see appendix I). All these ratios help to determine a company's working capital position. Current ratio shows the ability of a company to meet its short term expenses and obligations out of its current assets less current liabilities. Sainsbury plc's current ratio is 0.79:1 at the end of the year 2006 whereas it was 0.57:1 in 2005 and 0.83:1 in the year 2004. It shows that the working capital position of the company has declined by about 5% over the last three years. The company is able to pay off only 79p for every 1 borrowed. Quick ratio is a variant of current ratio. It is calculated on the basis of only the current assets that can be readily converted into cash, excluding inventory and prepaid expenditures. Sainsbury plc's quick ratio is 0.67:1 at the end of year 2006, 0.46:1 in 2005 and 0.67 in 2004. This means that the company is only able to pay off 67p for every 1 of its short term obligations out of its quick current assets.
For efficient working capital management, it is very essential that the company is able quickly convert its receivables and inventories into cash. The receivable turnov
Sainsbury plc is a limited company publicly listed on the London Stock Exchange. Because of the type of company's business, it has access to a great number of financing opportunities as compared to other types of business like sole proprietorship and partnership etc…
This research is being carried out to evaluate and present sources of short-term finance. This research is the best example of comparison of working capital performance. The following paper also gives an overview of the liquidity ratio and efficiency ratio, in particular, of debtor days; creditor days and stock turnover days.
The short-term finance refers to that finance which is obtained for a shorter period of time, generally for a period of less than one year. After obtaining the short-term finance, the companies make use of it in either raising working capital for the business or financing other areas of the business.
The methodology provides a description about four short term finance sources availed by the businesses. Each one is separately described. Subsequent to that, the liquidity and efficiency ratios of Sainsbury and Tesco have been computed and compared. Four different sources of short term finance Short term finances fulfil the day-to-day operations of business.
There are several ways of raising short term funds for the business which are: a. Commercial Loan and bank overdrafts Commercial loans are loans usually provided by banks for the financing needs of a business. Commercial banks typically offer straight term loans to credit lines that would be used in the various operation of the business (Raiborn 2010).
Capital assets are properties own by the Company whose useful life is greater than one year, and are likely to earn sufficient income to cover the operating expenses and amortized acquisition cost associated with it (Baker, & Powell, 2005). Land, buildings, facilities, equipment, machinery, and vehicles are examples of assets.
While operating in such a market environment, the pricing strategy of a company will be greatly affected by the prices of other marketers. Therefore, it is not possible for a firm to set higher prices unless all the market players mutually agree with such a practice.
Commercial banks typically offer straight term loans to credit lines that would be used in the various operation of the business (Raiborn 2010).
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The present research has identified that in many cases, the government relies on the private sector for the providence of commercial goods and services. Although some tasks are specifically carried out my government personnel however others are completed as part of contracts. Performance is a key consideration when contracting certain tasks to the private sector.
Its recent outbreak has hit hard on the Airlines industry. Airlines including emirates, British airways, air France has implemented bans on their flights to and from the areas that have been affected with
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