Chapter 4:

4.6)

Management accounting is attributed to be quite significant for business leaders while making decision. These business leaders rate management accounting to be quite useful source of data while making vital choices. The information acquired may offer an extensive insight on the processes and projects of the company as data is created for precise objective and stated user (Gill, Biger, and Mathur, 2010, p. 2). This is vital for J Sainsbury in trailing its effort of ‘recovery to growth’ objective.

It is just singly if the data is operated in the correct manner that the right decision will be acquired. The information has to be convenient when it is considered for major management choices. These management accounting has to uphold its decision making tendency and prioritize certain aspects. Of consideration is the management of working capital, precisely the organization of the inventory

This section looks to assess the relationship between the working capital management and the organizations’ profitability. The management of working capital is a quite significant aspect in the corporate financial organization as it is directly impacts the profitability of an organization. The management of working capital is attributed to the organization of present assets and liabilities.

An organization may have an ideal standard of working capital which optimizes their worth. Huge inventories and credit policy may lead to great sales. The great inventory similarly leads to the threat of stock-out. The trade credit may motivate sales considering that it permits an organization to acquire product quality prior to being paid. Another aspect of the working capital is that the accounts payable. Taking too long to pay accounts payable to the distributors makes it possible for the companies to acquire quality goods and may be cheap and dynamic basis of funding (Gill, Biger, and Mathur, 2010, p. 1). Similarly, the delay of the payables may be expensive if a company is accorded discount for the prior payment. With the same measure, an acquired accounts receivables may result to cash coming in for the organization.

A common form of working capital management is the cash transformation tendency, which is the time interval between the expenses for what is bought in terms of raw materials and the acquired sales of manufactured products. A lengthier cash transformation may lead to greater profitability as it leads to massive sales. Though, the corporate profitability may decline with the cash transformation tendency, if the charges of greater investment in working capital increase quicker than the advantages of holding additional inventories as well as granting additional trade credit to clients.

The inventory turnover ratio and receivables turnover ratios accords us information about J Sainsbury performance in the sale of inventory and where later there is cashing of the receivable. These are important pointers of the manner a business is organizing and controlling its working capital.

1. Sainsbury is gradually having an excellent turnover ratio. This shows that the company is in possession of the most favorable inventory size and the products are quite fast. Additionally, the receivables’ turnover ratio has constantly been in the range of 3-5 that does not show a quite working and efficient management of the receivables. The organization ought to acquire its receivables on a regular basis and advance the ratio.

The stocks turnover has gone on to improve. This portrays that the method that was applied so as to elevate the supply chain has brought about efficiency. There has similarly been an extension and further transformation in the depots which has improved operations (Gill, Biger, and Mathur, 2010, p. 2). They are now able to manage 50m cases at an equal charge. The opening of a distribution base is intended to bring about an increase additional sales.

The ratio of the working capital using the sales is not that strong. While in regards to the trade credit, the level acquired is better considering that the retail grocery does not have goods to issue out until it becomes a franchise base. This is considering that additional credit is acquired from distributors. The credit period by the debtors brings forth a working negotiation with the distributors. They are hence able to make good use of their finances.

Reference

Gill, A., Biger, N., and Mathur, N., 2010, The Relationship Between Working Capital Management And Profitability: Evidence From The United States, Business and Economics Journal, Volume: BEJ-10