Leasing analysis is the process of measuring the effectiveness of an organization’s leasing activities It is an important part of financial planning and budgeting, as it allows organizations to evaluate what investments they have made in leasing and their potential return on those investments In addition to providing insight into the organization’s overall performance and financial stability, it can help the organization identify strengths and weaknesses in its leasing program, provide a snapshot of where they stand in relation to others in the industry, and inform decisions on future leasing activities.
1) Comparing Lease vs. Buy: Organizations can use leasing analysis to compare leasing a piece of equipment against buying it outright. By analyzing the costs associated with both options, organizational leaders can make an informed decision on whether it makes more financial sense to own or lease the asset.
2) Determining Optimal Lease Terms: Organizations can use leasing analysis to determine the most cost-effective lease terms for a given asset. Lease terms can vary greatly, from short-term to long-term, so organizations need to consider things like capital outlay, cash flow, and tax considerations when making their decision.
3) Evaluating Lease Renewals: Organizations can use leasing analysis to decide whether to renew a lease or upgrade/replace the asset. It can help them determine if there is a potential return on the current asset or if a new one could provide better savings over the life of the lease.
4) Managing Off-Balance-Sheet Obligations: Leasing analysis can help organizations stay on top of their off-balance-sheet obligations and liabilities. It can inform decisions on how to manage their portfolio of leases, and can be used to track the impact of leasing activities on the organization’s profitability.
5) Setting Reasonable Residual Values: Leasing analysis can help organizations set realistic residual values when entering into a new lease agreement. By understanding the value of the asset over time, the organization can ensure they are setting a reasonable residual value that will not negatively impact their cash flow and profitability.
Leasing analysis is a powerful tool for organizations to measure and evaluate their leasing activities. It can inform decisions on whether to lease or buy, help determine the most cost-effective lease terms, evaluate lease renewals, manage off-balance-sheet obligations, and set reasonable residual values. By leveraging leasing analysis, organizations can ensure they are making the most profitable decisions for their equipment investments.