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Merging and acquisition theory in finance

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Use Of Leasing To Improve Financial Administration Results

Leasing is the procedure in which the business acquires fixed assets from the Lessor (Owner) for some fixed period of time and the Lessee (Receiver) pays installments for that period and takes advantage of tax-deductible payments. Basically there are two types of lease one is a capital lease and another is an operating lease (Moretto and Tagliavini, 2009).  As a Chief Financial Officer of the organization, I would suggest that an Operating lease will be the most suitable to improve the financial results because it is not capitalized in the financial statements of the company. Whereas in the case of the capital lease, the assets are capitalized in the financial assets of the company which directly impacts the liability of the company, so it is not favorable for the company to improve its financial results.

An operating Lease will not affect the liabilities of the company and this can be explained with the use of some specific details that how an operating lease enhances the financial results of the company.

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Deductible expense:

In an operating lease, Lesse has to only pay the rent for the assets as it is not capitalized. Expenses incurred in the operating lease are deductible from the profits of the company (Knubley, 2010). So it only affects the profits of the company and does not affect the liability, which assists the company to improve its financial position.

Augmentation of cash flows:

In an operating lease, there is improvement in the cash flows of the company as it is directly deducted from the Profit and Loss account and does not impact the cash flows of the company. Assets hired on an operating lease basis will present a healthier Balance Sheet for the company as there is no deduction of depreciation, which leads to improved financial results for the company and also increases the cash flow of the business(Knubley, 2010).

Improvement in financial ratios of the company:

The use of operating leases in business is of a Balance Sheet nature which assists in improving the financial results of the company in terms of Return on Net Assets and enhances its Return on Capital Employed.

Benefits of tax incentives:

Using of operating lease also benefits the company in terms of tax, as the company does not have to pay tax on assets that are leased (Moretto and Tagliavini, 2009). This finally improves the financial results of the company because the business does not have to pay any taxes on it.

Advantages and Disadvantages of Merger and Acquisitions along with examples

The merger of companies states about grouping of two companies to form one new company which is known as a merger and acquisition, when one company acquires the business of another company or buys the shares of another company is termed an acquisition (Dauber, 2012).


Advantages of Merger and Acquisitions:

  1. Through merger and acquisition company acquires a larger market area or there is an increase in the market share of the firm.
  2. Competitive advantage in the market, as it directly eliminates the competitors (Campbell, 2011).
  3. One of the main advantages of merger and acquisition is that the company gains the expertise skills and knowledge along with some valuable assets.

Disadvantages of Mergers and Acquisitions:

  1. Due to mergers and acquisitions, there will be an increase in diseconomies of scale which impacts the cost and expenses of business operations (Campbell, 2011).
  2. Conflicts will arise in the organization due to the involvement of employees related to different cultures and this also minimizes the effectiveness in operating activities of the business.
  3. Increase in the liability and responsibility of the company as the business is expanding which increases the responsibility of the management (Whitaker, (2012). It will also increase the liabilities of both the companies.

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EXAMPLES OF SUCCESSFUL MERGERS OR ACQUISITION

  • Google acquired Motorola Mobility
  • Microsoft purchased the business of Nokia
  • Microsoft acquired Skype
  • Berkshire Hathway purchased Heinz Company
  • Merger between Disney and Pixar

EXAMPLES OF UNSUCCESSFUL MERGERS OR ACQUISITION

  • Sprint and Nextel Communications
  • Daimler Benz and Chrysler
  • General Electric failed to merge with Honeywell
  • At&T failed to acquire T-Mobile
  • Microsoft failed to acquire Yahoo

REFERENCES

  • Dauber, D. (2012). Opposing positions in M&A research: culture, integration and performance. Cross Cultural Management: An International Journal. 19(3). pp.375 - 398.
  • Knubley, R. (2010). Proposed changes to lease accounting. Journal of Property Investment & Finance. 28(5). pp.322 - 327.
  • Moretto, E. and Tagliavini, G. (2009). Pricing and net profit of operating lease. Managerial Finance. 35(10). pp.828 - 840.
  • Campbell, D. (2011). Mergers and Acquisitions in Europe. Kluwer Law International.
  • Whitaker, C. S. (2012). Mergers & Acquisitions Integration. John Wiley & Sons.
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