Report on Managing Financial Resources- Sainsbury PLC

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Managing FinancialResources
Table of ContentsINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................41.1 Sources of finance available to a businesses.........................................................................41.2 Implication of different sources of finance..........................................................................51.3 Evaluation of different sources of finance............................................................................52.1 Cost of different sources of finance......................................................................................62.2 Importance of Financial Planning.........................................................................................62.3 Information which are needed for making decisions............................................................72.4 Impact of finance on the financial statements.......................................................................73.1 Cash budget for the business entity.......................................................................................83.2 Calculation of Unit Cost........................................................................................................93.3 Assess the viability of a project using investment appraisal techniques.............................10TASK 2..........................................................................................................................................124.1 Main financial statement.....................................................................................................124.2 Compare the appropriate formats of financial statement in the different type of business.124.3 Interpretation of financial statements using appropriate ratios by using internal andexternal ratios............................................................................................................................13CONCLUSION..............................................................................................................................14REFERENCES..............................................................................................................................15
INTRODUCTIONFinancial management includes the planning, organising, controlling as well asmonitoring the different resources so that they can attain the goals and objectives. Theemployees of the business entity have to make the statements which are related to finance so thatthey can improve the performance as well as viability of the organisation (Arthur, Cheng andCzernkowski, 2010). It assist in providing the appreciation of costing along with the budgetingtechniques and they have their own role on the control system of business enterprise. They haveto develop the methods so that they can evaluate the capital investment proposals. The presentreport is based on J Sainsbury PLC which is a second largest chain of supermarket in UK withhaving a share of 16.9%. J Sainsbury PLC having three divisions which includes supermarket,Bank and Argos . In the below mentioned report, discussion based on the different sources offinance and also the cost should be analysed of the different sources of finance (Managing YourResources, 2017).TASK 11.1 Sources of finance available to a businessesDifferent sources of finance include the J Sainsbury plc which is following:1.Equity share:- Equity share is also known as ordinary share. It is the owner of thecompany is is also issue for cash. Ordinary share have right to take decision in acompany. In this share the risk is maximum with the business (Bennouna, Meredith andMarchant, 2010). And also have voting rights to the holders. Equity shares are theincluded the dividend after paying to the preference share and the dividend depend on theprofit of the company. And the dividend rate is not fixed in equity capital.2.Debenture:- Debenture is a long term security and fixed rate of interest. It is also knownas bond which is issued by the company. Debenture is a type of loan but it is not issuedby the bank. Debenture have first right to take interest in fixed rate in the availability ofthe profit. Debenture is debt which is used by companies to borrow money at a fixed rateof interest that can help in raise of money regarding the company (Bodie, 2013).3.Retained earning:- It is a reinvestment process that is recorded in the equity share capital.It is non payable but also reinvest in the company. In this process the net income added inthe retained earning and subtracting the net losses and opening retained earning and also
subtracting dividend paid by the share holders. It is profit generated by the company thatis not give the customers as well as suppliers(stakeholders). It can reduce the company ylosses (Bradbury, 2011).1.2 Implication of different sources of finance1.Equity share:- Equity share is a ordinary share to take decision regarding the J Sainburyplc company that is helps in investment process and also take the right decision about theinvest the money to earn the higher profit in the company but it is more risky to thecompany in the issue of share (Carballo-Penela and Doménech, 2010). Either availabilityof the profit or loss the equity share to have the right after paying the preference sharecapital to give the dividend at no fixed rate. In the implication process the equity shareholders have to higher return and higher risk.2.Debenture:- Debenture is a log term finance for the J Sainbury plc company. Thedebenture includes the fixed rate of interest to pay for the company in the instalments.The debenture relates in debt financing that is includes the benefits of tax. Debenture canhelp for the company that is include the rate of interest in a availability of the profit. Inthe debenture the profit is not share in the debenture holder the can charge only fixed rateof interest.3.Retained earning:- Retained earning is a important financial sources of internal uses forworking capital. In can be increase the value of the share holder regarding the boost upthe firm in a financial term (Collier and et. al., 2010). In the retained earning the cost offinancing that shows the no cost of the company regarding the general process of thecompany. In the retained earning the important advantage is cheaper source of financewhich is not involved the coast as well as obligation to pay anything in the company. Andthe disadvantage of thr retained earning that is improper utilization of fund. 1.3 Evaluation of different sources of financeThere are different sources of finance which helps in making appropriate and relevantdecision for doing the investments. In the equity share is a best way to get money in the businessto helps in cash flow. In the investing decision the fundamental analysis is also based on thecompanies balance sheet that can helps in show the cash flow of the company ans also providethe income statement. Foe the appropriate decision the saving is the most important factor ofputting the money in the company (Collins, Hribar and Tian, 2014). In the terms of finance by
using as well as issuing share company can raise their finance. In the sources of finance the riskis always there so the company can evaluated the risk in a investment process in the companythey can define the higher investment as well as higher risk. When investment is low the risk isautomatically low ans the investment is hight the risk is also high. In a business to take a loan toachieve the more finance by the bank. Before provide the loan bank must to know about thebusiness as well as business opportunities and also involve the risk regarding the loan (Cui andRyan, 2011).2.1 Cost of different sources of financeThere are several sources of finance by which J Sainsbury PLC get the amount to domore investments. They can earn money by issuing equity shares, preference shares, debenturesetc. Along with this it helps in making the correct and appropriate decisions. Different sources offinance are:Equity shares: For those person who are having the equity shares of the business entity theyhave to pay dividend cost in which price of the shares is given to the equity shareholders and thecost which are related to equity shares they are included in the working capital (Drivelos andGeorgiou, 2012). Cost of equity shares can be measured by price ratio method, earning yieldmethod etc. Debentures: These are also issued by J Sainsbury PLC to earn money as these also helps inmaking the appropriate decisions regarding investments. In this interest cost can be charged. It isthe second bond holders and they are paid at a fixed or specified time. Along with this they arecharged on the face value of debentures. There is a formula to calculate the cost of debenturesthat is:Kd = I/PoRetained earnings: It is also a part of the company which provide the sources to do more financeas well as investment. In this cost which is calculated that is opportunity cost. Moreover, it isdifferent from the other sources which includes the debt or equity (Gervais, 2010). Cost ofretained eraning can be measured or calculated by the formula that is:Kr = Ke(1-t)(1-b)2.2 Importance of Financial PlanningFinancial planning is necessary for J Sainsbry PLC as it assist in determining thefinancial goals whether it is short term or long term. Along with this the employees have to
create a balanced plan so that they can meet the targets. It assist in making the relevant decision.Along with this financial planning is important as it helps in managing the income and by thatthey can make the tax payment, expenditure and savings (Healy and Palepu, 2012). Financialplanning increases the cash flow on the basis of that they can monitor the spending patterns andexpenses. When financial planning increases the cash flow then it also increases the capital. So,that higher authorities of J Sainsbury PLC can make the correct decisions for making theinvestments. When the business entity make the proper financial plan and for that they have toconsider the personal circumstances, objectives and risk tolerance. It provides the guidance tochoose the right type of investments so that they can fit into the needs, personality along with thegoals. Further, financial planning aid in making the changes so that they can not face anyproblem in making the correct decision for investment on the basis of high liquidity (Hodge,Hopkins and Wood, 2010). They have to establish a relationship so that they can make a adviceon the basis of finance. They have to meet and assess the current financial circumstances. Alongwith this they have to develop the comprehensive plan so that they can attain the goals andobjectives. 2.3 Information which are needed for making decisionsThey have to make the appropriate decisions in the terms of financial planning in whichemployees of J Sainsbury PLC. While doing the financial planning some information which is tobe used by the employees that is size of J Siansbury PLC. When the size of the organisation ishuge then they require the large amount of money. Management of the projects is also essentialso that they can invest the money in the different projects in which they are having the definitelife as well as objectives (Kirkham, 2012). They have to manage the cost of capital as well asopportunity cost so that they can attain the good result and on the basis of that they can improvethe performance in the market place. Leaders, managers and management of a cited companyare the final decision makers. They collect appropriate amount of information form external andinternal environment and then lead in taking effective decisions. Hence they can use either one ofthe style of decision making through which they can attain all of their goals and objectives in aneffective manner:1.Command: According to the scenario they take effective decision without consultingtheir teams. This form of style is also consider as the autocratic style of leader because

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