Financial Analysis of Sainsbury's
Added on 2020-01-28
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Table of ContentsINTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................1TASK 1............................................................................................................................................11.1 Identifying sources of finance available to business.............................................................11.2 Implications of sources of finance identified.........................................................................21.3 Appropriate source of finance for business project...............................................................22.2 Cost of each source of finance...............................................................................................32.2 Importance of financial planning...........................................................................................32.3 Information need of external and internal decision makers...................................................42.4 Impact of finance on financial statements.............................................................................43.1 Analyzing budget and making decisions...............................................................................53.2 Calculation of unit cost and making pricing decisions..........................................................63.3 Assessing viability of project using investment appraisal.....................................................6PART B...........................................................................................................................................8TASK 2............................................................................................................................................84.1 Main financial statements......................................................................................................84.2 Describe and compare format of different financial statements............................................84.3 Ratio analysis.........................................................................................................................9CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................11
INTRODUCTION Managing financial resources plays the most crucial role in the organization as it is wellknown fact that without finance, no business can survive in the market for longer period of time.Further, business has to indulge into proper practices so that its long term aims can beaccomplished through financial planning. Moreover, while launching new business in themarket, it is necessary for management to manage all the range of financial resources as it canbring favorable results for business (Carroll, 2007). Apart from this, different sources are presentwhich company can consider for satisfying its financial needs and it involves internal andexternal one. For conducting the present study, entrepreneur is planning to launch new businessthat can be both rewarding along with demanding. For successful implementation of the newcompany, it is required for top officials to manage finance as a key resource in an effectivemanner. Various tasks have been covered in the present study which involves sources of finance,costs of different sources of finance, calculation of unit cost etc. PART ATASK 1 1.1 Identifying sources of finance available to business Different sources of finance are available with new business which management canundertake for satisfying its financial needs. Such sources are present both internally andexternally with the help of which it becomes easy for business to carry out its overall operationsin the market. Such sources are as follows:Bank loan: It is possible for new business to satisfy financial needs by taking loan fromfinancial institutions present in the market (Conesa and Martínez, 2004). By consideringthis source, it is possible for business to enhance its liquidity position and can providelong term benefits in near future. Issue of shares: Newly established venture can issue shares in the market and throughthis, financial needs of the business can be satisfied by obtaining funds from investors.This can be fruitful for business and can assist in long term expansion also (Types andSources of Financing for Start-up Businesses, 2015). Owner’s capital: This source of finance is also effective for new business whereentrepreneur can invest own capital for satisfying financial needs. It is considered as oneof the cheapest sources and overall operations of business can be carried out easily. 1
Reduction of working capital: For satisfying overall financial needs, it is necessary forbusiness to manage its working capital so that larger funds can be saved easily forcarrying out overall operations in the market (Daskalakis and et.al., 2013). 1.2 Implications of sources of finance identifiedEach and every source of finance identified for satisfying financial needs of business hasdirect implication of company which management has to consider so that all the operations canbe carried out smoothly and in an appropriate manner. Main implication of bank loan as a sourceof finance is that business has to pay large amount to banks in the form of interest due to whichexpenditure level rises. Further, it is required to repay amount on the monthly basis which hasalso direct impact on company (Fakhfakh, Zouari and Zouari-Hadiji, 2012). Issue of shares isalso one of the sources identified for business through which financial needs can be easilysatisfied. Main implication of this source is that voting rights to investors are transferred and it isrequired for business to distribute profits in the form of dividend which also increasesexpenditure level of the company. Owner’s capital is also one of the sources identified forbusiness where its implications are declined in overall savings of the company which haveunfavorable impact on entrepreneur. Therefore, these are some major implications of the sourcesof finance which business has to consider for conducting overall operations in an effectivemanner. 1.3 Appropriate source of finance for business projectAll the sources identified for new business with the motive to satisfy financial needs areappropriate, but after considering its implications, it is necessary to select the most appropriateone. Bank loan is one of the most appropriate sources of finance where new venture can obtainloan from bank at an agreed rate of interest (Gaskell and Ashton, 2008). Further, undertaking thissource can enhance liquidity position of the company and it will become easy to carry out all theoperation in an effective manner. Apart from this, considering owner’s capital as a source offinance will also be appropriate for business where entrepreneur can utilize own savings for thenew venture. These two sources of finance are favorable for business after considering itsimplications. Apart from this, undertaking advantage along with disadvantage of every source offinance assist business to avoid unfavorable situation such as inadequacy of finance. 2
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