It seems reasonable to state that within the scope of the marine industry, managing funds is a crucial aspect to arrange properly to achieve profitability and success. The essence of the case given is that a shipping company expresses willingness to invest in a new vessel. It is in good financial shape and has sufficient capital to finance the vessel. The firm’s credit rating is excellent, and it has never had any issues in addressing its previous debts. Below, the arguments in favor of the combination of using private funds and bank loans in the framework of investing in the mentioned vessel will be provided.
The critical task of financial management here is to leverage the risk of the investments by appropriately utilizing the company’s advantages. In particular, the firm is financially successful and possesses private assets to cover such a deal completely. However, if the corporation adheres to this approach, it will have fewer funds and opportunities to invest during the process of the vessel’s production as the expenditures will be significant (Stopford, 2009; Chen, 2020). It fetters the company’s financial flexibility and negatively impacts its competitiveness, which is important under the current conditions of the market.
Hence, the firm can appeal for a secured short-term loan, which fits the need for short-term funding. The deal here is about one vessel, not a plant or a great number of units. The company has assets to secure the loan with collateral that will ease the process (Ganti, 2020). The corporation can cover about 40% of the investments with its private funds and 60% – with a secured short-term loan. This will result in maintaining financial flexibility and leveraging several undesired risks.
References
Chen, J. (2020). Private investment fund. Investopedia. Web.
Ganti, A. (2020). Short-term debt. Investopedia. Web.
Stopford, M. (2009). Maritime economics (3rd ed.). Routledge.