Cash Flow Interpretation: J Sainsbury PLC
Cash Flow代写 The analysis of cash flow is a perfect reflection of how the company’s working capital changes and affected by transactions and operations.
A cash flow statement is a critical part of every company’s financial statement. The account can be a simple outline of cash inflow and outflow to a complex one with various sections that feed information into a central statement (Bhandari, and Iyer, 2013, p. 667). It lists the flow of cash in and out of the company. For instance, it can be thought in terms of a checking account at the bank where cash deposit is the inflow and withdrawals are the cash outflows. Cash Flow代写**范文
The bank account balance in is the net cash flow at a particular time. In the context of J Sainsbury PLC (2019, p. 99), cash flow statement shows the cash inflows and outflows as at 9th March 2019. Besides, reporting the changes in cash and cash equivalent, the cash flow statement is concerned with the timing of the cash flows (Lee, 2011, p. 30). The statement compares cash flow two periods including 2018 and 2019. Working capital is an essential part of the cash flow analysis and is defined as the amount of money to facilitate company transactions and operations. Cash Flow代写**范文
The analysis of cash flow is a perfect reflection of how the company’s working capital changes and affected by transactions and operations. Working capital is current asset net current liabilities. The analysis of cash flow statement gives a quick analysis of the company in the current and future period. Notably, when the working capital is sufficient, then cash flow budget is not necessary, but if it is insufficient then it is essential to have a budget to highlight liquidity issues that may impact the company in the near future.
Interpretation of the Cash Flow Statement Cash Flow代写
A cash flow statement has three fundamental parts including operations, investing and financing (Williams, and Dobelman, 2017, p. 109). Below is an analysis of real cash flow for J Sainsbury PLC. The figures will be stated in millions of pounds.
Cash from Operations
This is the cash generated from the main activities of the company (Kordestani, Bakhtiari, and Biglari, 2011, p. 277). The cash flow operating activities is adjusted for cash inflows generated from normal operations and cash outflows from cash expenditure in normal operations. In the case of J Sainsbury PLC, the profits before tax in 2019 was £239 million which is adjusted for net finance costs and share of post-tax profits from joint ventures and associates to get operating profits. Operating profits is then adjusted for expenses, changes in working capital as well as interest and corporate tax paid. The general approach for the calculation is;
Operations cash flow = Net Income + Non-Cash Items + Increase in Working Capital Cash Flow代写
618 = 312 + (992) + (-131) + (-555)
The cash flow from operating activities is calculated from net income from the income statement. The company’s use of accrual-based accounting requires adjustments in the cash flow statement. The use of this accounting principle necessitates the adjustment of net income by adding non-cash deductions like depreciation and compensations. After the adjustments are made of all non-cash expenses, changes in working capital. Cash Flow代写**范文
Revenues are recognized when products or services are delivered but not when they are paid, and hence some revenues are unpaid, creating an account receivables balance. The same applies to the expenses in the income statement but not paid. Additionally, the net cash generated from operating activities is positive meaning that the company received more cash than it paid out. Negative cash flow indicates that the company pays more than cash it receives. It is used as a better indicator than income since non-cash income cannot settle immediate company expenses.
Cash from Investing Activities Cash Flow代写
The company has invested outside its core operations, acquisitions of other investment and joint ventures (Tran et al. 2019, p. 72). The investment activities account for company spending on acquiring new assets and other income-generating activities. It also includes the proceeds from the previous accounting period. J Sainsbury PLC spent £599 on purchase of assets and joint ventures. The company gained £125 from assets disposals, financial assets, interests and dividends and distributions incomes.
Therefore; net cash flow from investing activities = (-599) + (125) = -474 Cash Flow代写
Notably, when a company buys fixed assets in a certain period, it affects cash flow negatively since it is an outflow of cash from the company. The cash flow for J Sainsbury PLC’s investing activities is negative. It might be an indication that J Sainsbury PLC has poor performance. However, according to Kaplan and Zingales (2000, p. 707), negative cash flow should not be used as an indicator for the financial constraint of a company. The reason being the company may have used a significant amount of cash on long-term assets such as the purchase of property and plant. Generally, it has increased but negative net cash flow from investing activities indicating that the company has spent much of its cash on buying of assets and other long-term assets.
Cash from Financing Activities Cash Flow代写
Section calculates transactions that affect the cash and cash equivalent (Fawzi, Kamaluddin, and Sanusi, 2015, p. 136). The two main financing activities in this part include a loan or issuing stocks to new investors. The company can also give dividends to investors. Some of the cash inflows include the issuance of shares and income from debtors. The cash outflows include repayment of borrowings, purchase of own shares, and repayment of the capital element of obligations under lease borrowings. Also, in the cash outflows include interests and dividends.
Therefore; net cash flow from financing activities for 2019 = (157) + (-909) = -752 Cash Flow代写
Notably, J Sainsbury PLC is a steady dividend payer. In the previous last year (2018) the company paid ordinary dividends of £212, which was increased to £224 in 2019. It also paid dividends for perpetual securities of £23 in both 2018 and 2019 financial years. It thus means that investors do not want to wait for capital appreciation and are assured of steady dividend paid by the company every year. The company is also issued shares to add on its equity financing. Cash Flow代写**范文
However, the main source of financing for J Sainsbury PLC is debt financing including leasing and loans. The repayment of borrowing and interest rates of £593 and £39 respectively are a clear indication of debts financing. Additionally, the purchase of own shares, repayment of debts and payment of dividends depict that the company is making enough and steady returns. It has been able to increase its repayment of borrowing amount from £148 in 2018 to £593 in 2019. Cash Flow代写**范文
J Sainsbury PLC has also been able to increase the purchase of shares and dividend payments from £26 to £32 and £212 to £224 in 2018 and 2019 respectively. Overall, net cash flow financing activities for both financial years are -470 and -474. The negative figure indicates that the company has been using its cash to settle debts and pay dividends.
Cash Flow for Both Periods Cash Flow代写
The overall cash flow for the company as of March 2019, indicate a decrease in cash flow from £651 to -£608 (J Sainsbury PLC, 2019, p. 99). A decline in cash flow shows not always raise a red flag without further analysis of the company’s cash flow statement to determine the cause of negative cash flow. There are times when a company has negative cash and cash equivalent because of investment decisions made (Chowdhury, Kumar, and Shome, 2016, p. 28). Cash Flow代写**范文
The reduction in cash flow for 2019 shows that J Sainsbury PLC spent much of its money to expand its business in 2019. Much of the cash was spent on the purchase of assets and payment of debt financing as well as dividends to shareholders. It is a good thing in the future of the company since it has an investment in long-term assets. The company is also paying a dividend to its shareholders and hence making its shares profitable which further reduce the cash at hand. Cash Flow代写**范文
However, the negative cash flow is supplemented by the opening cash and cash equivalent of £1077 and £1728 in 2018 and 2019 respectively. It makes the free cash for the year ended March 2019 £1120. Nonetheless, investment is key to the success of J Sainsbury PLC.
Reasons for High Outflows of Cash Cash Flow代写
J Sainsbury PLC operates in a very competitive market.
The management has been creative and innovative for the company to remain competitive in the market. It started by making changes in stores to utilise the spaces and serve the evolving needs in shopping. The changes included expansions and redesigning its spaces in some of the brands such as Argos stores, Specsavers, Sushi Gourmet, and Explore Learning (J Sainsbury PLC, 2019, p. 7). As a result, J Sainsbury PLC has invested more on assets plant and other equipment, increased borrowing to finance these projects. The aim was to maximise their productivity and hence increase consumer satisfaction. The company channels performance over the last one year for Argos stores have increased by 1 per cent
Similarly, in response to competition and market needs, the company has invested on Groceries Online channel. Cash Flow代写
Internet market is a modern technology that facilitates the improvement of productivity and sales as well as making the company profitable and competitive. It has more than 100 supermarkets installed with self-scan technologies to increase convenience in shopping (p. 11). The company has continued to tailor its services to fit the needs of local demographies and consumers shopping behaviours. As a result, convenience has increased by 3.7 per cent and Groceries online sales increased by 6.9 per cent over the last year (p. 10). The year-to-year growth in company’s performance has contributed to tremendous increase in net income that adds to the overall cash and cash equivalent of the company.
Additionally, Sainsbury Bank was acquired by the company in 1997 by acquiring 50 per cent shareholding from Lloyds Banking Group. Cash Flow代写
Financial services have more than 2 million subscribers. Financial services customers and other deposits constitute the most massive cash outflow in operations activities amounting to 1,480 pounds. The amount increased compared to the previous outflow of 1,161 pounds. The company aimed to diversify its operations to include Necter card payment and purchase options in its stores and supermarkets.
Overall, the financial health of J Sainsbury PLC is excellent and can meet its immediate financial obligations. Cash Flow代写
The cash flow statement has followed the international accounting standards by showing how changes in the balance sheet and income affect cash and cash equivalents. It has, therefore provided a picture of how money has been flowing in and out of the company in the financial year. The cash transactions in the period indicate a negative impact on the company’s cash. Compared to the previous years, the company has more investments and debt repayments meaning that it used its debts to finance investment. Cash Flow代写**范文
Debt financing allows the company to leverage a small amount of money into a much more significant sum and hence sparing the growth of the company than it would have been possible through equity financing. On the other hand, it has tried to create a balance through equity financing by selling shares. Equity financing has the benefits that it does not require to be repaid. The use of both equity and debt financing aim to obtain an optimal capital structure.
References Cash Flow代写
Chowdhury, J., Kumar, R. and Shome, D., 2016. Investment–cash flow sensitivity under changing information asymmetry. Journal of Banking & Finance, 62, pp.28-40.
Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement-based measures. Managerial Finance, 39(7), pp.667-676.
J Sainsbury PLC., 2019. Annual report and financial statements 2019. J Sainsbury PLC. Strategic Report.
Kordestani, G., Bakhtiari, M. and Biglari, V., 2011. The ability of combinations of cash flow components to predict financial distress. Business: Theory and Practice, 12(3), pp.277-285.
Kaplan, S.N. and Zingales, L., 2000. Investment-cash flow sensitivities are not valid measures of financing constraints. The Quarterly Journal of Economics, 115(2), pp.707-712.
Lee, L.F., 2011. Incentives to inflate reported cash from operations using classification and timing. The Accounting Review, 87(1), pp.1-33.
Tran, L.M., Mai, C.H., Le, P.H., Bui, C.L.V., Nguyen, L.V.P. and Huynh, T.L.D., 2019. Monetary policy, cash flow and corporate investment: empirical evidence from Vietnam. Currency Crisis, p.72.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book Chapters, pp.109-169.