The financial management policies of Sainsburys

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Report to critically evaluate the Financial Management policies and practices of J Sainsbury plc over the last five years. including gearing & dividend decisions, investment & performance appraisal and cost of capital subjects. J. Sainsbury plc was established in 1869 by John James and Mary Ann Sainsbury. It is established as Britain’s oldest food retailer. It comprises two divisions – Retailing, by way of its supermarkets and smaller convenience stores, together with its financial services, Sainsbury’s Bank. It aims to provide high quality products, at good value with an excellent standard of service. It is the third largest grocery chain in the UK behind Tesco and Asda/Wal-Mart. [1] The J. Sainsbury’s food retail area serves over 16 million customers a week by way of a total 788 stores and an internet-based home delivery service. The financial services area of Sainsbury’s Bank, offers a variety of packages including life insurance, saver accounts, credit cards and travel insurance to name a few. In October 2004 the supermarket giant was suffering the consequences of the increasing success of its competitors and it responded by announcing a dramatic recovery plan which would serve to lead it out of the spiraling losses the company was experiencing. Still reeling from the impact of late 1990’s BSE financial implications where the stores lost out over two million on fresh beef alone.[2] The Making Sainsbury’s Great Again strategy served to increase their overall profits by over 200 million before tax in just over one year.[3] Before floundering again two years later under speculation of an impending takeover. A fiscal breakdown of the procedures between 2003 and 2008 demonstrates the financial narrative of a company experiencing highs and lows in a competitive environment, maintaining its significant profile and diversifying its options. 2003-2005 Following on from 2002 and a year in which sales growth increased profits and encouraged the operational gearing, Sainsbury Shareholders’ funds increased by £155 million to £5,003 million, with net debt increasing by £248million. Public confidence had been gained but severe losses were still being documented. The company also found themselves having to increase their borrowing and extended their loans by an additional three and a half years. The overall Group gearing, or Net debt divided by total equity, rose to 28% with group capital rising from 11.1 % to 11.5%. This will no doubt be a reflection of the number of investments that the Sainsbury’s group made during this year.[4] The company Directors recommended the payment of a final dividend of 11.36 pence per share, at an increase of 0.54 pence from 2002 and a total dividend for the year ending 2003 of 15.58 pence per share, complimenting the increase in the number of shareholders that year. This total also reflected the company’s aim to encourage profit growth in 2004. In terms of the groups investments during these two years the one million pound investment it had made in the Homebase stores was sold. The final disposal of this investment made the company a total profit of around £61 million,

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