Nobody downloaded yet

Short and Long-term Financing - Assignment Example

Comments (0) Cite this document
Summary
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…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.2% of users find it useful
Short and Long-term Financing
Read TextPreview

Extract of sample "Short and Long-term Financing"

Download file to see previous pages 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.

Evidence B
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 ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Short and Long-term Financing Assignment Example | Topics and Well Written Essays - 2000 words”, n.d.)
Short and Long-term Financing Assignment Example | Topics and Well Written Essays - 2000 words. Retrieved from https://studentshare.org/business/1506289-short-and-long-term-financing
(Short and Long-Term Financing Assignment Example | Topics and Well Written Essays - 2000 Words)
Short and Long-Term Financing Assignment Example | Topics and Well Written Essays - 2000 Words. https://studentshare.org/business/1506289-short-and-long-term-financing.
“Short and Long-Term Financing Assignment Example | Topics and Well Written Essays - 2000 Words”, n.d. https://studentshare.org/business/1506289-short-and-long-term-financing.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Short and Long-term Financing

Short Term Long Term Goal

...?Prompt: Please answer all parts below: Why are you seeking to pursue your MBA study at this moment of your life? Describe your short and long term career objectives. How will you measure your success? Who do you want to be in the future? What steps will you take to achieve your goal? Explain how an MBA will contribute to these goals. Coming from a family of entrepreneurs, I was taught early in life that while formal education can teach you how to earn a living, self-education can make you a fortune. That is why although I’ve already had a considerable amount of success in my business ventures owing to my raw talent and the aptitude for business that I have gained over the years, I...
3 Pages(750 words)Essay

Short Term Long Term Goal

...understanding of sales and returns was inherent to me right from the start. Since then, I have never lost sight of my goals of pursuing entrepreneurship. In college, my friend and I started a clothing import company which enjoyed considerable sales. I also joined the companies of AXA Advisors, Philip Simon Developments USA, Inc and later Shoesapart, Inc. to learn fundamental business structures and to have an in-depth scope into daily business operations. Despite these developments, I know I can still be better. Thus, my short term goal is getting accepted to the CEIBS MBA program. My recent trip to China made me discover the great business potential that it holds. Not only does it offer accelerated and...
2 Pages(500 words)Essay

Short and Long-Term Memory

... Short and Long-term Memory Introduction The nature of memory has been a prominent concern of psychologists and health care practitioners. Memory oftentimes is dramatically affected by physiological injuries or impacts, such that gaining a deeper understanding of the concept is essential to human health. The nature of memory is not only closely linked to cognitive and neurological functioning, but also is a component of how we constitute our sense of self and reality. An extensive array of medical research has charted major components of human memory. The major memory divisions are recognized as short-term and...
3 Pages(750 words)Research Paper

Long Term Financing of Companies

...?Long Term Financing of Companies Contents Contents Introduction 2 Long Term Financing Sources and its Advantages and Disadvantages 3 Case Studies 6 Conclusion 7 Reference 8 Introduction Financing is necessary for a company to continue its business or improve the business. Mainly financing is necessary for the operations, continuing the day to day activities or expansion of a company. Financing may be of short term or long term. Short term financing is necessary for...
6 Pages(1500 words)Essay

Financing the Short Term Obligations

...? Financing the Short term Obligations Financing Introduction The purpose of this report is to assess and analyze the financing of short term debts and obligations. The report has been segmented into two parts. In the first part, sources of short term finance for businesses’ have been listed and then explained. Whereas, the second part contains evaluation of the financial performance of two organizations, that is, McDonalds and Burger King on the basis of the latest annual reports released by the two companies along with the financial ratios. Body Paragraphs Task 1...
4 Pages(1000 words)Coursework

Capitol Budgeting Long Term Financing

.... To be able to plough back retain part of their earnings for the purpose which facilitates not only the companies’ short term growth and long term growth but also has the implication of increasing the size of the company in terms of sales, in assets as well as shareholders wealth. 4. To increase the share prices and thus the credibility and goodwill of the company and its capability to raise further finance. Such return is necessary to keep the company’s operations moving straightforwardly and efficiently thus allowing the above objective to be accomplished. A financial manager and decision makers must present investment policies which...
3 Pages(750 words)Assignment

Financing: Long Term and Short Term

...? Financing: Long-term and Short-term Heather Jenks Corporate Managerial Finance BUS 657 John Brock Date of Submission: Introduction Any form of investment or business need to acquire finance that they will use in one way or the other in order to get established. Finance makes one of the fundamental requirements for establishment and good running of a business. Finance, however, may be acquired through different methods depending on its availability and the ease of repaying it. Financing means the provision of financial materials that a business requires. There are two...
10 Pages(2500 words)Essay

Short Term Financing

...Order 165816 Short- term financing Introduction A business establishment or a company has many ways of raising finances to conduct its operations be it operating expenses or equipping the company of its assets .Depending on the need and the purpose for which the finances are being sought. We have the two ways of raising finances i.e. short term financing or long term financing. Short-term financing: It is essentially to provide capital deficit business funs for a short...
3 Pages(750 words)Essay

Long-term financing of companies

...I. Introduction This paper aims to explore the various long-term sources of financing, which specifically delves with one debt source—the bond offerings, and one equity source—the seasoned equity offerings. The discussion revolves around academic studies that are referenced from various published journals. Also, companies such as Tesco Plc and Marks & Spencer have been analysed as regards their use of the long-term financing sources in order to give a better real-life insight into the discussion. II. Body A. The seasoned equity offerings Seasoned equity offerings or SEOs are stock issues for companies that are already publicly listed in...
6 Pages(1500 words)Essay

Capitol Budgeting Long Term Financing

...Effect of Capital Budget on Operating Budget Effect of Capital Budget on Operating Budget The capital budget is a type of budget dealing with the provision of resources for the long-term running of a business or company while operating budget on is a budget concerned with the day-to-day operations in a business or a company. It is obvious then that capital budget has a great impact on the operating budget. An operating budget should be ready for an annual operational cycle. Types of operating budgets include; the sales budget, production budget, labour budget. Capital budgets in a company use up a lot of money in catering for future/long-term goals leaving only a smaller percentage of cash in the company for the daily operations... that are...
1 Pages(250 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Assignment on topic Short and Long-term Financing for FREE!

Contact Us