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Leasing is the procedure in which the business acquires the fixed assets from the Lessor (Owner) for some fixed period of time and Lessee (Receiver) pays installment for that period and takes the advantage of tax deductible payments. Basically there are two types of the lease one is capital lease and another is operating lease (Moretto and Tagliavini, 2009). As a Chief Financial Officer of the organization, I would suggest that Operating lease will be the best suitable to improve the financial results because it is not capitalized in the financial statements of the company. Whereas in case of capital lease the assets are capitalized in the financial assets of the company and which directly impacts on the liability of the company, so it is not favorable for the company to improve its financial results.
Operating Lease will not affect the liabilities of the company and this can be explained with the use of some specific details that how operating lease enhance the financial results of the company.
In operating lease the 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 operating lease there is improvement in the cash flows of the company as it is directly deducted from the Profit and Loss account and do not impact on the cash flows of the company. Assets hired on operating lease basis will presents the healthier Balance Sheet of the company as there is no deduction of depreciation, which leads to improve the financial results of the company and also increases the cash flow of business(Knubley, 2010).
Improvement in financial ratios of the company:
Using of operating lease in business is off Balance Sheet nature which assist to improves the financial results of the company in terms of Return on Net Assets and enhances its Return on Capital Employed.
Benefit in 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 which are leased (Moretto and Tagliavini, 2009). This finally improves the financial results of the company because business does not have to pay any taxes on it.
Merger of companies states about grouping of two companies to form one new company which is termed known as merger and in acquisition, when one company acquires the business of another company or buys the shares of another company is termed as acquisition (Dauber, 2012).
EXAMPLES OF SUCCESSFUL MERGERS OR ACQUISITION
EXAMPLES OF UNSUCCESSFUL MERGERS OR ACQUISITION
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