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Provide a 7 pages analysis while answering the following question: Kind of Finance the Company. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract is require
Provide a 7 pages analysis while answering the following question: Kind of Finance the Company. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract is required. The company has utilized a good mix of short term and long term debt. The ratio of short term to long term debt is distributed at a proportion of practically 50/50. The majority of the short term debts are trade and other payables. This means that the company is obtaining its short term financing from its vendors and suppliers. Nearly 81% of their long term debt is categorized as long term-borrowings. The long term borrowings are possibly either bank loans or corporate bonds since those are the most commonly used long term debt instruments (Garrison & Noreen, 2003). The amount of equity the company has is worth $4935 million pounds the debt to equity ratio of the company is 1.05. A general rule for this ratio is that it is desirable for it to be around 1.00. (Beasley, et. al. 2000). The current ratio of the company which is calculated by dividing current assets by current liabilities is 1.95 (Annual Report: Sainsbury, 2008). That metric is because it means the company has nearly twice as many liquid assets than short debt implying they have no problem paying off its short term obligations.
Factoring is an arrangement in which a company sells off its account receivables at a discounted price. The transaction involves the purchase of account receivables by the lender or factor which means that if the purchaser of the goods does not pay for them, the lender rather than the seller takes the loss (Beasley & Brigham, 2000). In Sainsbury, the company has a total of $206 million pounds of account receivables. If for some the reason the company entered into any type of cash flow problems then selling off these receivables would a good solution. Currently, the company has a healthy total of $719 in cash reserves. Also, another way to look at factoring is as an investment opportunity in the sense that selling off the account receivable could be compared against the discount cost, and the conversion into cash could be utilized for other purposes.
