ROA Favorable for Operating Leases
The return on assets is higher with the operating lease than with the purchase of equipment. Although adjusted income is higher under the buy scenario, the asset base is also higher, making the ROA more favorable for operating leases.
There are soft costs that come into play in the analysis. At the end of the lease term, the Antares operator can return the equipment to the lessor if there will be no more need of the equipment. This option will reduce the cost for excess or idle equipment as well as reducing the warehouse space required for the Antares equipment not on location.
This means that the operation has increased its flexibility to determine what to do with the equipment at the end of the lease and also reduce its fixed cost.
Consider your capital flexibility
Preservation of capital is an added advantage to consider. Any company has a limited amount of capital. Operating leases will allow the Antares vending operation to keep its funds to improve flexibility, to meet seasonable needs, expand locations or pursue strategic initiatives.
A better allocation can be maintained on the operator’s balance sheet between fixed investment and variable/leased investment. This will allow the operator to retain additional capital for unforeseen opportunities. Operating leases will provide you with the flexibility to return the equipment if you do not have another contract site for the equipment at that time.
Reducing the risk of equipment obsolescence is another advantage to consider. With an operating lease, one can turn in the older model at the end of the lease for a newer version.
Consider flexibility in bidding
Strategically operating leases will enable the Antares operator to bid on large accounts or aggressively pursue new business to take market share. Here, the project can be funded via the cash flow generated from the location without a capital investment in new equipment. By the end of the contract, more flexible options will exist to dispose of or reallocate the assets.
Operators should always consider how the acquisition of new equipment will affect their return on assets.
posted by Larry Bunker @ 4:11 AM
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