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Different Sources of Finances

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  • Unit No: N/A
  • Level: High school
  • Pages: 5 / Words 1133
  • Paper Type: Essay
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  • Downloads: 799
Question :

Questions- This assessment will cover following questions:

  • Zylla company provides ferry service which offer river crossing services to people, vehicles as well as goods across the river. What are the short term and long-term sources of finance that helps to meet the capital needs.
  • Evaluate various investment appraisal techniques used by the Zylla company.
Answer :
Organization Selected : Zylla company

INTRODUCTION

Short-term finance basically fulfils the small-period financing needs of the businesses. Short-term finance includes such instruments, like; commercial paper, municipal debt, treasury bills, etc. On the other hand, long-term finance is useful in fulfilling the long-term financial needs of businesses. It also includes instruments, like; bank loans, leasing, bonds, etc. This is discusses the various sources of finance for the Zylla company to acquire the Ferry. These sources also fulfil the company's working capital needs.

MAIN BODY

Sources of Finance

There are many long-term and short-term sources of finance which are discussed below;

Short Term Sources

  • Bank Credit: Mainly commercial banks are providing this facility to the companies. This perfect option for the Zylla company to raise funds for the acquisition of the Ferry. The finance management of the company needs to request the selected bank to take decided funds (Petrović and Vuković, 2016). In this case, if the bank is satisfied with the company's conditions then it will give the needed funds to the company. The bank generally provides funds in some forms, like; Loans and advances, Overdrafts, and Cash credit etc. This source is also helpful in fulfilling the company's working capital needs.
  • Co-operative Banks: Co-operative banks also provide specific funds and loans to companies or businesses on the basis of their terms and conditions. So, here is also a great short-term finance source for the company. In which the company need to select only cooperative banks which provide funds on a minimum interest rate. These banks are also providing facilities of funds for fulfilling the needs of the working capital.
  • Customers' Advances: This is also an effective option for Zylla. In which the company need to take advance money from the customers when they buy its products and services. The company is responsible for returning that money or funds to the customers after a short time period, but it is a favourable way to raise funds for the acquisition of the Ferry and also for the fulfilment of working capital needs.

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Long Term Sources

  • Public Deposits: In public deposits, the public deposits their additional money and savings in highly valued companies (Pilbeam, 2018). In this situation, these companies return that money after a long period with a decided interest rate. So, for rise funds from long-term financial sources, is a good option for the company. With this fund, Zylla can easily run all its operations by fulfilling its working capital needs. It is also able to acquire the Ferry by raising funds from this financial source.
  • Financial Institutions: In the market, there are currently many financial institutions working to provide funds to many businesses and companies with effective and favourable interest rates. Especially for the long term. In this case, this is one of the best long-term sources for the company to raise necessary funds. With this, the company can easily cover its all business needs relating to the acquisition and working capital.
  • Term Loans: Term loans are also a suitable option for the company to raise their needed fund. Term loans are basically provided by all banks, like, development, commercial, and co-operative. These banks provide funds for a long time period like five to seven years. Mostly time period depends on the bank's terms and conditions (Martin and Hofmann, 2017). In this case, the finance management at Zylla needs to cover the market research to analyse which bank offers the best interest rate for long-term finance. Then choose bank according to the choice to arrange specific funds within the company for working capital needs and the Ferry's acquisition.

Also Read:- Advanced Financial Reporting & Regulation Sample

Investment Appraisal Techniques

There are three major investment appraisal techniques are mentioned below;

Account Rate of Return (ARR): This is basically the “Return on Investment” technique. It is useful for the company to gain effective target returns. The ARR is clarified as a percentage of the investment earnings in a project. The businesses are using it to achieve their accounting profitability objective (Katabi and Dimoso, 2018). Here is one disadvantage of this technique is, it completely ignores the cash flow within companies. The account rate of return technique is also considered a time-consuming technique by many big organizations.

Net Present Value (NPV): It totally works on the basis of the company's objective of wealth. For example; the company produces its products and services by using present and existing resources. In this case, the net present value is calculated by discounting total outflows and inflows of cash on the basis of the chosen percentage. The NPV is also known as the capital budgeting method. With the help of this, the companies easily make their important decisions related to finance and working capital.

Payback Period: The payback technique is important in making a balance between cash inflow and cash outflow. It basically considers cash inflow in the investment of capital to equal the outflows of cash (Riley, Fleming and Gallegos, 2016). With the help of the payback period technique, the company is able to recover its invested capital in any project.

Recommendation

Here is the payback period is too suitable investment appraisal technique for the Zylla company which it needs to use for the acquisition of the new Ferry. The main reason behind this statement is the payback technique is easy to apply in the business environment. The use is also not complicated, because high skills are not required to use it. In this technique there are zero assumptions about interest rates of the future. It will perfectly maintain the cash inflows and outflows factors while the company use its funds for operation and also for acquiring the new Ferry.

CONCLUSION

It can be concluded that there are various sources of finance for the Zylla company which are based on short-term and long-term periods. The company is able to choose any source from mentioned financial sources to fulfil its working capital needs. These sources are also helpful for the company to arrange or raise specific funds for the acquisition of the new Ferry. Here three investment appraisal techniques are also discussed. In these, the payback period is the most suitable technique for the Zylla which it needs to use while regulating the operation and acquisition of the Ferry.

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