concerns are raised against the profitability of the company which seems not to

Concerns are raised against the profitability of the

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concerns are raised against the profitability of the company, which seems not to be moving in the right direction as they indicate an inability to generate more cash from operation to support
short-term obligations amid weakening liquidity and raising debts levels. If this trend continues and COVID-19 continue to put pressure on consumer purchasing power, Sainsbury will be in a hard time to meet its operational demands and pay creditors on time. Thus, FreshFields Food may not consider entering into a business agreement with Sainsbury to supply the OS Orange range due to reasons mentioned above unless a favourable shift is evident going forward. 2.1 Part 2: Management Accounting and Financial Management Techniques Sainsbury management employs several management accounting and financial management techniques to help them manage the company. This section of the report focuses on discussing and substantiating two of these techniques: capital investment technique, and budgeting. The techniques are discussed as follows; 2.1 Capital investment techniques According to Atrill and McLaney (2019), capital investment techniques are employed by a company in making decisions concerning investments in new plant, machinery, buildings and other long-term assets with the main objective of improving the wealth of the owners (shareholders). These techniques including payback period, accounting rate of return, internal rate of return and net present value. A closer look at the financial statements of Sainsbury shows that the company employs these techniques, particularly the Net present value (NPV) in investment appraisal and reporting of assets and liability in financial statements. Atrill and McLaney (2019) defined NPV “as the sum of the discounted values of the net cash flows from the investment”. The sole application of NPV in the financial statement of Sainsbury just confirms how superior NPV is when compared to other capital investment techniques. Indeed, Atrill and McLaney (2019) noted that NPV is the only one of them that is wholly logical technique since it takes into account all of the benefits and costs of each investment opportunity and the time value of money arising from the benefits and costs from the investment. In other words, this technique agrees that a pound today is worth more than a pound tomorrow. Thus, to enable
stakeholders to make the right decision today, all costs and benefits and their associated timings should be taken into account. Application of NPV is evident in Sainsbury’s financial statement, particularly in the Balance sheet in valuing the Financial instruments at fair value through Other Comprehensive Income (OCI) item, which amounted to GBP972 million in 2020 and GBP645 million in 2019. According to Sainsbury (2020), this relates to the company’s beneficial interest in a property investment pool, which is estimated by computing an NPV of the company's interest in the various freehold reversions owned by the property investment pool. In doing so, Sainsbury assumes a discount rate of 9% and a rental growth rate of 0.6% per year. In addition, the company usually conducts

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