Report On Sainsbury's Sources Of Finance & Their Implications On Cost
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Added on 2020-02-05
Report On Sainsbury's Sources Of Finance & Their Implications On Cost
Added on 2020-02-05
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Managing Finance ResourceDecisions
Table of ContentsIntroduction ...............................................................................................................................1Task 1.........................................................................................................................................1AC 1.1 Finance sources available to the business.................................................................1AC 1.2 Implication of different sources................................................................................1AC 1.3 Appropriate finance source.......................................................................................2AC 2.1 Cost of different finance sources..............................................................................2AC 2.2 Importance of financial planning..............................................................................2AC 2.3 Information needs of different decision makers.......................................................3AC 2.4 Impact of finance on the financial statements...........................................................3Task 2.........................................................................................................................................3AC 3.1 Analysis of budgets and take decisions.....................................................................3AC 3.2 Calculation of unit cost and make pricing decisions.................................................4AC 3.3 Investment appraisal techniques...............................................................................6Task 3.........................................................................................................................................8AC 4.1 Financial statements of the company........................................................................8AC 4.2 Financial statements of different type of businesses.................................................8AC 4.3 Analysis of financial statements...............................................................................9Conclusion................................................................................................................................11Reference..................................................................................................................................12
INTRODUCTION Every organization has set objectives or targets that the organization needs to achieve.The success of the business is very much dependent on the availability of finance sources thatthe organization requires to run its business. Sainsbury's is the second largest chain ofsupermarket in the United Kingdom headquartered in Holborn, London, UK. The companywas established in the year 1869. It operates at international place as it operates in differentcountries over the world. The report aims at identifying a range of finance sources for thecompany, their implication in terms of cost and benefits. Moreover, the report will explainthat how financial information is used by various decision makers to take importantdecisions. Further, Investment appraisal techniques are also identified to evaluate thealternatives and select the best investment proposal. TASK 1AC 1.1 Finance sources available to the businessSainsbury can fulfil its finance need through distinct type of finance sources that aredescribed as follows;Internal sources: These types of sources are available within the organization itself.The internal sources include retained earnings, other business profits, disposing off the scrapassets or cash squeezing operations. Retained earnings are the remaining profit balances thatare not distributed among the shareholders. Further, Sainsbury's operates at larger placehence; it can also use the profits of other businesses. On contrary, through selling theunusable assets or making delayed payments to the creditors company can avail larger thecash balances.External sources: These sources are available outside from the organization includesbank loans, share capital and overdraft facilities. Sainsbury can take loans from banks fordifferent time duration. Further, banks also provide overdraft facilities to the company inorder to mitigate the urgent requirement. Moreover, the company can issue shares in themarket to the public to generate the required funds. Another important source is debenturesSainsbury can issue the debenture to the holders to fulfil the financial needs (Minnis, 2011).Moreover, venture capital can be provided to the investors for enhancing the funds. AC 1.2 Implication of different sourcesAll the finance sources applied different implication to the business. On the sharecapital business require to pay return to the shareholders. In case of bank loan and overdraftbusinesses require to pay interest charges along with the principal payment. On contrary, in1 | P a g e
case of share capital they have controlling rights as they can manage the operations of thebusinesses (Schroeder, Clark and Cathey, 2011). However, banks have not such kind of rightsthey can only sell the provided security against the given loan. Furthermore, on the issueddebentures company require to pay fixed rate of interest to the debentures. AC 1.3 Appropriate finance sourceAppropriate finance sources can be select on the basis of their implication. Forfulfilling the urgent or immediate requirement the overdraft and retained earnings will beappropriate sources. However, for fulfilling the medium term requirement bank loans can betaken by the company (Managing Financial Resources and Decisions, n.d.). Further, longterm finance requirement can be filled through issuing share capital as the equityshareholders return are not fixed. Therefore, it does not impose any fixed burden to thecompany. Moreover, venture capital also can be provided to the investors for this purpose. AC 2.1 Cost of different finance sourcesThe cost of distinct finance sources tends to vary from each other. For instance, on theissued amount of share capital, the company require to pay dividend to their shareholders.Further, before adopting any new policy shareholders must be communicate as they are theowners and having voting rights that give them right to manage the business operations.However, the cost of bank loans, debentures and overdraft facilities involve interest charges.The interest rate on bank loans may be of two kinds fixed or fluctuating (Malmi andGranlund, 2009). However, under the debentures company need to pay a fixed rate of interestto the holders. Moreover, retained earning does not include any financial burden to thecompany. However, it includes opportunities cost as the company can use this retainedearnings in the other sources. For instance, it can invest the profits in other company thathaving higher the profits. Further, the cost of cash squeezing operation is that business cannot avail cash discount in case of delayed payments. AC 2.2 Importance of financial planningFinancial planning helps to manage the business finance sources in an efficientmanner. Moreover, it helps to take better investment and working capital decisions. Itdetermines the organization fund requirement and determines optimum capital structure. Ithelps to attain debt and equity in an appropriate ratio at minimum cost that helps to yieldmaximum return. Further, it manages the working capital through administrating the cashinflows and outflows (Ismail and Mohsin, 2013). Through financial planning business is ableto control income efficiently. Effective financial planning helps to make easier the financial2 | P a g e
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