Evaluate Sainsbury plc's financial strategy Essay - 2

Evaluate Sainsbury plc's financial strategy - Essay Example Sainsbury's is headquartered in Holborn Circus. To ensure that its products are effectively distributed in the local and neighboring markets, the supermarket has established a number of subsidiaries in the UK market. Under the leadership of David Tyler and Justin King the company chairman and chief executive respectively, Sainsbury’s has more than 150,000 employees. This has resulted to a significant increment on the company revenue that stood at ?21.102Â  billion in 2011. This paper, evaluate Sainsbury plc’s financial strategy by analyzing its financial performance in the last few years. To expand its customer’s base and generate more revenue that is needed to undertake its operations, Sainsbury's has opened a number of stores, supermarkets and a significant number of hypermarkets. To ensure that the supermarket is financial strong to cater for its short-term and long-term liabilities, Sainsbury's operates Sainsbury's Bank whose key objectives is to sell financ ial products. One of the major factors that Sainsbury's has adopted to enhance its financial performance was the formation of a joint venture with Lloyds Banking Company among other firms. Major strategies that Sainsbury's has adopted to strengthen its financial position is merger and acquisitions (Adizes 35). As depicted earlier, the supermarket generated total revenue of ?21.102Â  billion in 2011. ... ncial Statement 2012 indicate that as a result of the increase in the investment, the net debt of the company increased from ?1,814 million in 2011 to ?1,980 million in 2012. This was however, offset by reasonable cash that was generated from leasebacks and sales. Table indicating cash generated from operations and net cash from operating activities by Sainsbury’s in 2011 and in 2012 financial years. Figures are in ? million. Cash generated from operations 1291 1388 Interest paid (142) (126) Corporation tax paid (82) (158) Net cash from operating activities 1067 854 Net cash used in investing activities (883) (902) Issue of shares proceeds 14 17 New debt 391 45 Borrowings repayments (65) (79) Dividends paid (285) (269) Source- Sainsbury’s Annual Report and Financial Statement 2012 Financing of Sainsbury operations According to the board of the directors, Sainsbury’s is focused at effectively managing its finances by maintaining appropriate stand-by liquidity, red ucing the risks of refinancing and diversifying the sources of funds. Two of the major long-term loans that are vital in the operations of Sainsbury’s include loans of ?1,036 million and ?843 million that are due on 2018 and 2031 respectively. The company has provided its property assets as the security for the loans. Other key sources of funds includes unsecured loans of ?499 million, finances leases of ?143 million, and convertible bonds issued to the public amounting to ?190 million. Based on the profitability of the company, the board is focused at repaying the loans in the next five years. In order to have adequate cash to cater for short term and urgent liabilities, Sainsbury’s maintains a revolving credit facility amounting to ?690 millions (Modigliani and Miller 263). According to the 2012