Report on Zylla Company: Finance and Investment Appraisal

This report provides a comprehensive analysis of Zylla Company's financial strategies, focusing on both short-term and long-term funding sources. It explores various methods, including overdrafts, account receivable financing, customer advances, long-term loans, retained profits, and the issuance of equities and debentures. The report then delves into investment appraisal techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, providing detailed calculations to evaluate the financial viability of potential investments. The conclusion emphasizes the importance of effective funding and investment appraisal in achieving business goals and objectives. The report references several academic sources to support its findings.

Business Scenario for
Individual Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Short term or Long term source of finance..............................................................................1
2. Investment appraisal techniques..............................................................................................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business scenario for individual report is an important method which include the various
stages of the enterprises architecture (Singh, Jain and Yadav, 2012). It enable individual
requirement in context of overall problem. Zylla company selected for the better understanding
of this concepts. It is UK based company which operated in various numbers of ferries.
Company provide river crossing services to the general public, vehicles, goods and other
material.
This report include the various topics such as short term as well as long term source of
finance for the fulfilment of working capital requirement in the organisation. In addition, it
include the evaluation of investment appraisal techniques which help the business to identify that
weather the investment is beneficial or not.
MAIN BODY
1. Short term or Long term source of finance
Short term source of finance: Additional money required by the organisation to
complete their short term activities in the business. It is basically for the maximum time period
of one year to repay amount. Their are some short term finance which help the Zylla Limited to
fulfil the need to working capital for the smooth functioning of internal operations. It will be
discussed below (Short term or Long term source of finance, 2019):
Overdraft: Organization prepare overdraft agreement with bank where they allow the
business to borrow money with the specific limit without any further discussion. Bank ask for the
security in term of collateral where they charge daily interest. Then it will be paid by the
company whenever they feel comfortable to repay but they have to make sure that time period
not exceeding not then one year. This short term finance help the Zylla company to fulfil their
daily working capital requirement.
Account Receivable Financing: Almost every organisation such as bank or non baking
institute offer invoice discounting facilities. Where business sell their commercial bills to the
bank which make the payment after deducting some charges. At the time of due date of bill, bank
will recover the amount from customer. This is the another form of short term financing which
help the Zylla company to complete their working capital requirement need.
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Customer Advances: Companies offer the advance payment facility to their customers
which also a one of short term source of finance. It happen at the time of dealing large order
which take longer period to complete. So organisation required advance money to complete their
task or to fulfil working capital requirement. Zylla company can use this source
Long term source of finance: Obtain funds for the longer duration which is basically
more than one year. Organisation borrow funds for the long term purpose which help the
business to complete their operational functions. Due to lack of finance, company will suffer in
term of their productivity of profitability. Zylla company required long term funds to complete
their working capital requirement.
Long term loan from bank: Loan from banks, which allow the organisation to meet
their working capital requirement. Loan have more then 1 year time period which help the
organisation to repay easily (Singh, 2013).
Retain Profit: It is totally depend upon the organisation that they have to pay dividend to
their shareholders or retain for the further investment. Retain some proportion of profit so they
use this amount as a working capital which help the business to run their operational functions
effectively.
Issue equities and Debentures: For the requirement of money, company issue the equity
or debenture which help the business to fulfil their daily working capital requirement. When
organisation decide to expand their business or they required funds then they issue equity or
debenture to rise funds.
2. Investment appraisal techniques
Their are various techniques for the investment appraisal such as NPV, IRR or Payback
Period and it will discussed or calculated below:
Net present value (NPV): It is a series of cash flow which generated at different level of
time and present value of project depend upon time when cash inflow start generating. NPV
depend upon the discounted rate which provide the different inflow of amount as time passes.
NPV = Cash Inflow – Cash Outflow (Initial Investment)
Pay Back Period (PP): It is a one of capital budgeting technique which help the business
to identify the time which company required to recover their investment money. For the
calculation of pay back period, they required cost of project or cash inflow (Pistor, 2012).
Payback Period = Cost of Project (Initial Investment) / Annual Cash Inflow
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Internal Rate of Return (IRR): It is a measurement technique of interest rate of an
investment. It's calculation exclude the external factors such as cost of capital, financial risk,
inflation or risk free rate. It is also called discounting rate of return (Andor, Mohanty and Toth,
2015).
IRR = ra + NPVa (rb – ra) / (NPVa - NPVb)
ra = Lower Discount Rate
rb = Higher Discount Rate
NPVa = NPV using lower discounting rate
NPVb = NPV using higher discounting rate
Calculation of NPV, IRR or PP:
Year Cash flow PV @ 3% Dis Cash Flow
0 -150000 1 -150000
1 55230 0.971 53628.33
2 70045 0.943 66052.435
3 88375 0.915 80863.125
4 79870 0.888 70924.56
5 57555 0.863 49669.965
5 45000 0.836 37620
NPV 208758.415
IRR 34.14%
Payback Period 1.49
Payback Period = Initial Investment / Annual Inflow
= 1,05,000 / 70,215
= 1.49 year.
*Working Capital:
Initial Investment = Investment – Scrap value
= 1,50,000 – 45,000
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= 1,05,000
Annual Inflow = (55,230 + 70,045 + 88,375 + 79,870 + 57,555 ) / 5
= 3,51,075 / 5
= 70,215
CONCLUSION
From the above discussion it has been concluded that, short term or long term source of
funding help the organisation to fulfil their working capital requirement. It help the business to
smoothly run their operational functions which further helps to achieve their goals & objectives.
In addition, appraisal techniques help to measure that project is beneficial or not for the
organisation.
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REFERENCES
Books & Journals
Andor, G., Mohanty, S. K. and Toth, T., 2015. Capital budgeting practices: A survey of Central
and Eastern European firms. Emerging Markets Review. 23. pp.148-172.
Pistor, K., 2012. April. Real vs. Imagined Financial Markets–The Regulatory Challenge.
In paper preparedfor the 3rd Annual INET Conference, Berlin (pp. 10-12).
Singh, M., 2013. The economics of shadow banking. Liquidity and Funding Markets, Reserve
Bank of Australia, Sydney, pp.5-28.
Singh, S., Jain, P. K. and Yadav, S. S., 2012. Capital budgeting decisions: evidence from
India. Journal of Advances in Management Research. 9(1). pp.96-112.
Online
Short term or Long term source of finance. 2019. [Online]. Available Through:
<https://www.invensis.net/blog/finance-and-accounting/sources-of-short-term-and-
long-term-financing-for-working-capital/>
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