Sainsbury Plc Essay Example | Topics and Well Written Essays - 2500 words

Sainsbury Plc - Essay Example The ratio signifies that in the first year the firm has used around 58 % long term borrowing. However, it was reduced in the next year because the equity portion increased to a higher level. It is evident from the Table 1 that all components of equity portion have increased substantially in the year 2008.Factoring is a method of short term financing whereby a firm sells its trade debts at a discount to a financial institution (Lajoux 2004). It is a continuous arrangement between a financial institution (namely the factor) and a company (namely the client) which sells goods and services to trade customers on credit. As per this arrangement, the factor purchases the client's trade debts including account receivables either with or without recourse to the client, and thus, exercise control over the credit extended to the customers and administers the sales ledger of hi client. The client is immediately paid a sizeable portion of the trade debts taken over and when the trade customers re pay their dues, the factor will make the remaining payment. To put in simple language, a factor is an agent who collects the dues of hi client for a certain fee. Factoring offers a number of benefits to a client. In many cases factoring is found to be a more appropriate mode of financing than banks. Some of the benefits are briefed below: The first and foremost service offered by a factor to its client is that it offers an off balance sheet financing arrangement. By collecting receivables of the clients, factor provides them with a means of finance without bothering about the procedures and troubles of usual financing arrangement. Factoring allows firms to manage the cash flow more efficiently. It does not need to wait for the realization of debtors/receivable to find cash flows to pay off various obligations and cash needs. Therefore, cash position/working capital position can be made sound and stern. The efforts of collection of receivables can be canalized to some other areas and thereby organization's efficiency can be improved. In the absence of factoring arrangement, the risk of non-payment should have been borne by the client itself. Thus, factoring is also a kind of insurance whereby the risk of loss or non payment by debtors will be shared with factor(s) Apart from being a financier, a factor provides the client with the management and maintaining ledger of debtors A number of consultancy services such as assessing he credit worthiness of client's customers, ascertain their track record are also offered by factor. In addition to the direct benefits from a factor, the clients are benefited many other indirect trade benefits such as increased working capital position; liquidity; bargaining power and trustworthiness among customers and public at large. 3. Control of working capital has always been thought to be the most important factor in the short-term financial management of companies. In what sense your