Reference no: EM133000178

Zip plans to raise $400m for overseas expansion Australian Zip Co is preparing to tap the market for more funds as it moves to take advantage of the global buynow-pay-later boom.

• Shares in the company, which now has more than 6.4m customers around the world, have been suspended pending a capital raising. Late Wednesday the company issued terms for a $400m in bonds that convert to shares.
• Zip shares surged 17 per cent on Tuesday after it posted record revenue and transactions in the March quarter helped by growth in the US, the UK and New Zealand. The shares fell 1.2 per cent to $9.61 on Wednesday.
• The company, which has recently added retailers including JB Hi-Fi, The Good Guys and Microsoft to its payment platform, said it was expanding as the aversion to traditional credit cards and the rapid adoption of buy-now-pay-later became a "global phenomenon."
• Zip chief executive Larry Diamond said the company was pleased with growth over the quarter, confirming its position as one of the fast-growing operators in the buy-now-pay later sector. "We delivered another exceptional set of numbers with the US business again a standout," said Mr Diamond.
• The fund raising comes as Zip invests new markets outside Australia, New Zealand, the US and the UK. The company has rolled out a soft launch in Canada driven by US merchant demand while investments had been made in South-East Asia and Eastern Europe. Morgans analysts Richard Coles and Steven Sassine said Zip had good prospects as long as it could execute on its ambitions to become a global payments player.
• "Zip continues to point to a healthy global merchants pipeline overall," the analysts said in a note to investors. "The UK market remains in its infancy after launching in late 2020, with some initial merchant signings including HomeBase, JD and The Fragrance Shop."
• They said risks to the company's prospects included slowing sale momentum due to COVID- 19 restrictions, competition affecting profit margins and higher funding costs.
• The Commonwealth Bank earlier this year launched an assault on Zip and rival Afterpay revealing that it would create its own buy now, pay later service, scheduled to go live later this year. It said it would create its own service in a bid to capture a greater proportion of the emerging payment method market.
• Zip Co Ltd has announced plans to raise $400m via bonds (i.e. debt financing) to finance expansion plans(The Australian, 15 Apr 2021, page 16).

Using knowledge acquired in this unit, you decide to investigate the financial statements of Zip Co for the year ending 30 June 2020. Using ratios covered in this unit and associated analysis, your aim is to analyse your choice of elements of liquidity, asset mix and solvency, and then use this analysis to draw a conclusion regarding the strength of the financial position of the company and whether this is strong enough to support the debt financing and future growth ambitions.

Problem 1: Provide a summary of your conclusion regarding the ability of Zip Co to successfullyundertake future growth ambitions.