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Management Accounting At J Sainsbury Plc Add in library

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Question:

Describe about the Management Accounting at J Sainsbury Plc?
 
 

Answer:

Introduction

This paper described the various aspect finance function. The main objective of this paper is to evaluate the finance function in the specific organization. This paper covers the tradition role, financial and non-financial challenges and calculation of working capital in the J Sainsbury plc organization. This paper enables to improve the finance condition to serve better management. Indeed, finance function is economy theory that advised by the Abba P Lerner that look to eliminate economic insecurity during the Second World War. Finance function theory doesn’t believe that government should balance their budgets.

Traditional roles of the finance function

Tradition role of the finance function is communicating information to managers and shareholders to present in monetary terms such as payables, receivables, payroll and the relationship with the bank. In the recent times, role of the finance function has been under scrutiny. It focuses on detail and more data which doesn’t give valid information for better business decision. Changes in the finance functions are organized and the key role requires new structure, contribution and new relationships. The business will focus to finance function to handle and raised regulation and complexity of the organization. Finance functions are able to maintain accountability and performance measure. The key role of the finance functions are investment in equipment, buy alternatives, product or service validity and performance of the whole system. Finance executives in the large UK organizations have investigated the role of finance that elements impacting the future of the finance function and problems to change. (Bonham, & Langdon, 2013) On the other hand, the finance function is expanding an enabler across the firms function and value chain, cost management, process design, corporate governance, resource allocation and risk monitoring. In this environment, finance should deal with larger volumes of data and greater complexity while decreasing its prices.

 

The financial and non-financial challenges

People have faced many challenges when the planned about their financial and non-financial situation. These are financial challenges that are described below:

Lack of time and knowledge: When people planned their financial condition they faced lack of knowledge and time problems. People don’t know that how to manage their financial position. Due to routine activity, they are unable to give time for their financial position and they are also not an expert about financial management that how to divide their investment between stocks, cash and bond based on your time frame and personal comfort that directly affects the financial function of the organization. (Davidson, 2013)

Overwhelm with debt: Debt is the main problem for financial success most of people. The money management strategy helps to overcome from debt. If people have lot of debt burden then it will be difficult for the person growth and development. So, debt reduces person success in the society or community. It is the sign of relation with financial function. If your credit not good and retirement plan money is only option for manage your future security and if you will take big loan. Then, it would increase your debt amount.

Lack of saving: Most of people belong to middle class category those have lack of saving so it is difficult to save enough. People are unable to save money then how they will invest. Saving is about prioritization. Saving plays an important role in the perspective of investment. Lack of saving affects investment plan of a specific country. (Davidson, 2013) Money saves helps to raise GDP growth of the country. If GDP will grow then people living of standard will be raised constantly. GDP is the symbol of country growth and development. Lack of saving destroys the financial strength of the people. Further, non-financial challenges are following below:

Cost and time: This is very significant challenges of the non-financial that affect financial function. Without cost estimate we are unable to judge financial condition of the organization. (Ittner, & Larcker, 2000)

Lack of statistical reliability: It is main challenges for non-financial that affects the financial function of the organization. (Ittner, & Larcker, 2000)

 

The finance function adapted the challenges to serve better management

Indeed, business partnering, talent management, business intelligence, outsourcing, benchmarking the solutions put further to raise effective finance function. We think that confidence in selecting the best class can be achieved by only analyzing finance functions. In this paper we suggest a model that helps managers carry out this investigation. Our objective of the work is to help finance employees and their advisors in their role of contributing to firm’s success. To achieve this objective, it required a broad understanding of finance functions. These kinds of understanding supports to manager anticipate and adapt to change as they wanted to develop as effective finance departments. This paper also serves to manager’s relationship between finance activities and internal tension and challenges that faced by finance employees. Growing our knowledge of finance functions is a current process that the model supports to facilitate. Moreover, this model is a complex set of interrelationships. We will definitely understand the finance function and how it supports to firms success. So, this paper objective is to provide a practical technique and reference material. This provides guide and checklist to ensure issues, contextual and relevant activities. Based on this managers can raise tailored solution that suit own unique circumstances. Finance function has potential to adapt challenges in the organization and helps to provide better management quality in the organization.

Further, these are following finance function that will help to explain how finance function adapt challenges to provide better management services that are described below:

Investment decision: The significant finance function is to allocate capital to log term assets. It is very important to allocate capital in long term assets therefore to get maximum yield in future. It is also called as capital budgeting. It is not only includes allocating capital but also includes decision of using funds that are collected by assets that become less productive and profitable. An opportunity cost of capital desire to estimate when you are dissolving like assets. The cut off rate is estimated by rate of return (RRR). So, its future is not certain because there is lot of problems in estimation of expected return. Therefore, they adopted two kinds of investment decision that appraisal of new investment in terms of profitability and comparison between new investment and prevailing investment. However, risk factor plays an important role in the estimating the expected return of the prospective investment. So, when we believing investment decision, it is significant to take both risk involved and expected return. Investment decision is very helpful to provide better management facility in the perspective of finance function because it raise the people saving and provide proper guideline to safe investment  for future life security. Without proper investment we can’t get good return in the specific period.

Financial decision: This is another significant function that a financial manager must perform. It is able to take good decision about where, when and how should a business acquire funds. The market value of the organization will maximize so optimum capital system would be achieved. On the other hand, equity and debt and there are variety of tools that are used in deciding an organization capital structure. The mixture of equity and debt is also called as the organization capital structure. Financial structure said that its aim to maximize shareholders return with lower risk. Debt and return of a shareholder is risky it may raise the return of equity funds. Without a good financial decision, it would be difficult to growth and development in the business. However, financial decision makes a manager stronger as compare to other and it is helpful to business succeed.  If manager will take wrong decision as well as finance concern then it would harm organization management strategy.

Dividend decision:  Gain or positive return is a common objective of all the business. But the main function a financial manager performs in regard of profitability to decide to distribute all profit to stakeholder. Financial managers have rights to decide a maximum dividend policy that increases the market value of the organization. Therefore, maximum dividend payout ratio is estimated. It is normal rule to pay yearly dividends, if organization gets profit and other way is to issue bonus share to existing shareholder. Through dividend decision, finance function has tried to adapt these challenges to provide better management services in the organization. Different companies pay different dividend scheme to attract their shareholder in the organization. However, sometimes companies pay dividend to attract shareholder while they haven’t strong financial condition but they announced dividend scheme. Dividend can be announced on the basis of half-yearly and yearly. Indeed, dividend decision defines the classification of earning between retained earnings and payments of shareholders. it is a scheme that management formulates in the perspective to earnings for distribution as dividend within shareholders. It is significant part of current corporate world.

Liquidity decision: This is significant to maintain a liquidity position of the organization to avoid bankruptcy or financial condition. Firm liquidity, risk and profitability are linked with the investment in present assets. Current assets must value and disposed on time once they become non-profit organization. Current assets must use times of bankruptcy and time of liquidity trouble. In the process of maintain to tradeoff between liquidity and profitability, it is significant to invest enough funds in the current assets. Sometimes managers need to take contingency decision to handle conflict or dispute. Then, liquidity decision skill helps to manager to adapt the challenges to serve better management. Indeed, liquidity relate to organization skills to pay its current expenses and bills. Liquidity is availability of cash, short term debt and other liabilities. Many firms require the certain degree of liquidity to pay their bills on time, but new firms are not very liquid. However, liquidity decision plays an important role in the organization because organization must take some contingency decision so liquidity factor helps the manager to take good decision as well as stakeholder perspective. Through this kinds of decision raise the organization growth and development and it is essential for the organization succeed.

 

Working capital & Sainsbury finance function can support management

Indeed, working capital is an evaluation of a firm’s short term liquidity or its potential to cover short term liabilities. It is explained as difference within current assets and current liabilities. It is evaluation of company efficiency and operating liquidity. Further, working capital depends on how much of current debt the firm is carrying on its balance sheet that may be positive or negative. Small working capital is the sign of lack of fund necessary for development. It presents that if the organization has sufficient liquid resource to satisfy operation expenditure.

Calculation of working capital of J Sainsbury plc (million)

Working Capital = current assets-current liabilities

 

Working Capital

 £                               1,973.00

current assets

 £                               4,369.00

current liabilities

 £                               2,396.00

(Source: J Sainsbury plc, 2015)

J Sainsbury plc Finance Function is determined as the activities includes in managing cash that exist through business. Sainsbury finance function includes some basic function that can support management. These finance functions are financing, financial management, corporate governance, capital budgeting and risk management.

First, financing function of Sainsbury Company includes increasing capital to help a firm operation and investment scheme. It is called as capital structure that includes the mix of debt and equity securities which maximize the organization market value. (Graham, & Smart, 2011) Young and small firm increase equity capital from their friends, family and investor such as venture capitalists.

Second, financial management of Sainsbury is to ensure that organization has sufficient fund on hand to help regular operations. It includes paying supplier, obtaining seasonal financing, collection from customers and investing surplus cash. Financial activities require not only analytical and technical skills, but also people skills. This activity includes maintaining relationship, building, supplier and leaders.

Third, corporate governance of the Sainsbury Company includes incentive and growing organization structure that affects managers to behave ethically and made decision that benefit shareholders. Sainsbury corporate governance system is tough to develop in practice because the incentive of managers, stockholder and other conflict among stakeholder. The organization stockholder desire managers to work hard and protect interest of shareholders that could support the management of Sainsbury Company. Managers desire to raise the wealth of owners, but they wanted to protect their own jobs. (Graham, & Smart, 2011)

Fourth, capital budgeting of the Sainsbury Company also known as investment function that includes choosing appropriate projects in that to invest the organization funds based on their expected risk. Due to large scale of capital investment and prosper in a competitive economy it is very critical function of Sainsbury Company. Sainsbury must divide investment level in small scale to manage better. Otherwise, it can harm organization growth and development.

Fifth, risk management of Sainsbury Company includes measuring and managing the organization demonstration to all kinds of risk to maintain an optimal risk return. So, it maximizes share value of Sainsbury Company. It could support the management because it is capable to identify, measuring and managing the risk return of the organization. The organization can reduce the risk through diversifying. (Graham, & Smart, 2011) Although, organization risk management practices concentrate on market driver risk who work as part of the organization treasury employee. Sainsbury finance functions could support the management because it has potential to manage risk factor in the organization through evaluating maximum risk return.

 

Conclusion

On the basis of above discussion, it can be concluded that clear traditional roles and financial and non-financial challenges as well as high ability to adopt new service management scheme of Sainsbury helps it to maintain its competitive position in the worldwide finance function industry.

 

References

Augustin, J., (2011). Management Accounting at J Sainsbury Plc. Germany: GRIN Verlag.

Bangemann, T., O., (2005). Shared Services in Finance and Accounting. USA: Gower Publishing, Ltd.

Bonham, A., & Langdon, K., (2013). Finance: Fast Track to Success ePub eBook. UK: Pearson Inc.

Chiu, D., K.,W., (2012).  Theoretical and Analytical Service-Focused Systems Design and Development. USA: IGI Global.

Davidson, L., (2013).  Three Common Financial Challenges And How To Overcome Them. Retrieved from: https://www.forbes.com/sites/financialfinesse/2013/08/29/three-common-financial-challenges-and-how-to-overcome-them/

Graham, J., & Smart, S., (2011). Introduction to Corporate Finance: What Companies Do. USA: Cengage Learning.

Ittner, C., & Larcker, D., (2000). Non-Financial Performance Measure: What Works And What Doesn’t. Retrieved from: https://knowledge.wharton.upenn.edu/article/non-financial-performance-measures-what-works-and-what-doesnt/

Jackson, S., Sawyers, R., & Jenkins, G., (2008). Managerial Accounting: A Focus on Ethical Decision Making. USA: Cengage Learning.

John Graham, Scott Smart (2011). Introduction to Corporate Finance: What Companies Do. USA: Cengage Learning.

J Sainsbury plc, (2015). Annual report and financial statements 2014. Retrieved from: https://www.j-sainsbury.co.uk/investor-centre/reports/2014/annual-report-and-financial-statements-2014/

Karunakar Patra (2006). Accounting and Finance for Managers. India: Sarup & Sons.

Malcolm Prowle, Eric Morgan (2005). Financial Management and Control in Higher Education. UK: Psychology Press.

Matt Bamber, Simon Parry (2014). Accounting and Finance for Managers: A Decision-Making Approach. USA: Kogan Page Publishers.

Megginson, W., & Smart, S., (2008). Introduction to Corporate Finance, Abridged Edition. USA: Cengage Learning.

Paul M. Collier, Sam Aguei-Ampomah (2005). Management Accounting-Risk and Control Strategy. USA: Elsevier.

Sherman, E., H., (2011). Finance and Accounting for NonFinancial Managers: EBook Edition. USA: AMACOM Div American Mgmt Assn.

Siciliano, (2003). Finance For The Non-Financial Manager. USA: Tata McGraw- Hill Inc.

Pandey, I., M., (2009). Financial Management. India: Vikas Publishing House Pvt Ltd.

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