Financial Management Report for Zylla Company

This report discusses the financial management aspects of Zylla Company, including short and long term sources of finance, investment appraisal techniques, and a recommendation on the viability of a new ferry investment.

A REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Short term and long term sources of finance...............................................................................3
Evaluation of investment appraisal techniques............................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
The present report is based on financial management with regard to the given business
scenario of Zylla company. Zylla is involved in the business of running ferries across a river
where river crossing services are provided for goods, people and vehicles. The financial position
and performance of the business is quite good along with having better prospects for the future in
terms of expansion. Accordingly, management is considering a buy for a new ferry to meet the
increasing demand for their ferry services. Therefore, in this report, various aspects of financial
management will be taken into account that is, sources of long term and short terms finance for
buying and providing for working capital with respect to a newly bought ferry. Furthermore,
various investment appraisal techniques will be evaluated and one of this technique would be
applied to appraise the proposal of investment in new ferry.
MAIN BODY
Short term and long term sources of finance
Short term financing could be possible through sources of short term finance which
involves extension of loan or credit facility to a business for a period not more than one year
(Atmadja and et.al., 2021). This type of financing is demanded for financing working capital
needs which involves current liabilities management, payment for raw materials, salaries &
wages to labourers, etc. Accordingly, with the help of short term sources of finance, smooth
functioning of day to day activities of the business is possible by ensuring sufficient liquidity.
Sources of short term finance are as follows:
Trade credit: Here funding is made available through agreeing with suppliers for not making
immediate payments for the raw materials or any other supplies. With this, business operations
are continued without interruption on account of arranging for finance in order to make payments
to suppliers. Also, there is no requirement of paying interest on the trade credit provided.
Bank finance: It involves both bank overdraft of short term loan from bank. Bank overdraft
allows for withdrawing over and above what is available in the business bank account and
interest is charged on the amount overdrawn (Ochi, Idiege and Bassey, 2021). On the other hand,
bank loan facilitates businesses to borrow at a particular rate of interest for short duration against
the security. Here repayment could be both in instalment and lump sum amount depending upon
the terms of loan contract.

Commercial papers: For the purpose of raising short term funds, businesses with high
creditworthiness used to issue unsecured promissory note to banks, businesses or insurance
companies at a discounted value. The repayment is done at face value within the range of 91 to
180 days.
Bill of exchange
Long term financing facilitates acquisition of funds for many years and accordingly, long
term funding requirements could be fulfilled through long sources of finance. For Zylla company
who wants to acquire new ferry and is looking for raising fund for the same, there are several
sources of long term finance available to them, such as the following:
Equity shares: It is a capital market instrument that is being issued by businesses for getting
funds for a longer period. With this instrument, provider of funds gets ownership stake in the
business to the extent of their capital contribution. Equity shareholders have voting rights and
full control over the business's operations.
Retained earnings: It is considered to be the best source of financing expansion and growth
prospects of the business where business plough back their earnings in activities related to
expansion and growth rather than distributing it as dividend among owners or shareholders (Eton
and et.al., 2021).
Term loans: It involves obtaining loan for longer period from commercial banks or any other
financial institution where there is a need for some kind of security to get the loan application
approved. There is need to pay interest on the outstanding amount of loan for the term it remains
outstanding and till maturity, the entire amount of loan needs to be paid back.
Evaluation of investment appraisal techniques
There are various techniques available for appraising investment proposals with the help of
which management of the business could be able to desired whether they could generate desired
returns by making investment in proposed projects or not. Also, these techniques are useful in
selecting best and more profitable projects in case of mutually exclusive options of investment
are present. The following are the popular investment appraisal techniques:
Non – discounting techniques: No consideration for time value of money.
1. Payback period: It indicates the duration within which the initial cost of investment
would be recovered through cash inflows generated by the investment. Generally, a

project with lower payback period is selected over the project with longer payback
period. It is considered to be a useful technique for short term projects only.
2. Accounting rate of return: Here accounting profit resulting from investment is
expressed as a percentage of cost of initial investment and accordingly, regarded as a
return on investment (Atmadja and et.al., 2021). It helps in evaluating the performance of
investment on the basis of their operating results. Net income is used as a base for ARR
instead of cash flows which is considered as a better performance measure of investment.
Discounting techniques: Here time value of money is taken into account.
Net present value: It is the difference between present value of future cash inflows and present
value of cash outflows. If NPV is positive, then only management proceed with the investment
and in case of mutually exclusive projects, one having higher NPV is selected.
Recommendation on viability of new ferry
Discount
factor (a) Cash
flows in
£000 (b)
Discounte
d cash
flows
(a * b)
Cost of ferry 1.000 (150,000) -150000
Cash inflows for five years:
Year 1 0.971 55,230 53628.33
Year 2 0.943 70,045 66052.44
Year 3 0.915 88,375 80863.13
Year 4 0.888 79,870 70924.56
Year 5 0.863 57,555 49669.97
Sale of decommissioned ferry in
year 5
0.863 45,000 38835
Net present value 209973.42
As the NPV of the new ferry is positive, it means the projected earnings are higher than
the anticipated costs of the ferry. Accordingly, it is profitable for Zylla to proceed with the
investment in same being a viable investment avenue (Al Mheiri and Nobanee, 2021).

CONCLUSION
From the above report it has been concluded that investment in new ferry is profitable
investment avenue as the NPV comes out to be positive. Accordingly, for financing its
acquisition several sources of long-term finance such as equity shares, retained earnings, etc.
could be used while for funding working capital needs, short term sources of finance such as
trade credit, bank finance, etc. could be used.

REFERENCES
Al Mheiri, R. and Nobanee, H., 2021. A Mini-Review on Sustainable Financial Management
Practices.
Atmadja, A. T., and et.al., 2021. Influence of Human Resources, Financial Attitudes, and
Coordination on Cooperative Financial Management. The Journal of Asian Finance,
Economics, and Business, 8(2), pp.563-570.
Eton, M., and et.al., 2021. Financial Management Practices And Profitability of Small Scale
Enterprises Uganda, A Case of Kabale Municipality.
Ochi, I. I., Idiege, A. F. and Bassey, D. S., 2021. Contemporary financial practices and going
concern of manufacturing corporations in Nigeria. International Journal of
Multidisciplinary Research and Growth Evaluation, 2(2), pp.134-139.
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