PRESENTATION ON

Financial Management

GNIMS - MFM IV Sem

PRESENTATION BY
Name
BHUSHAN ASAWALE

Roll No.
F - 04

ABHIJIT BAIT
KAMLESH JAGDALE

F 05
F 15

ABHISHEK KELASKAR
VIPUL KOKATE

F 22
F 24

PRATHAMESH KUDTARKAR
Financial Management

F 25
GNIMS - MFM IV Sem

MEANING

Leasing, as a financing concept, is an arrangement between two parties, the leasing company or lessor and the user or lessee, whereby the former arranges to buy capital equipment for the use of the latter for an agreed period of time in return for the payment of rent.
The rentals are predetermined and payable at fixed intervals of time, according to the mutual convenience of both the parties. Lessor remains the owner of the equipment over the primary period.

Financial Management

GNIMS - MFM IV Sem

DEFINITION

Lease is a form of contract transferring the use or occupancy of land, space, structure or equipment, in consideration of a payment, usually in the form of a rent. - Dictionary of Business and Management

Financial Management

GNIMS - MFM IV Sem

LEASING AS A SOURCE OF FINANCE

Leasing is an important source of finance for the lessee. Leasing companies finance for: Modernization of business. Balancing equipment. Items entitled to 100% or 50% depreciation. Assets which are not financed by banks/institutions.

Financial Management

GNIMS - MFM IV Sem

TYPES OF

Financial Management

GNIMS - MFM IV Sem

FINANCIAL LEASE

Also known as Capital Lease, Long-term Lease, Net Lease and Close

Lease.
It is like an installment loan. In a financial lease, the lessee selects the equipments, settles the

price and the term of sales and arranges with a leasing company to
buy it. He enters into a irrevocable and non-cancellable agreement with the leasing company. Land & building, office equipments, heavy machinery are leased.
Financial Management GNIMS - MFM IV Sem

OPERATING LEASE

Also known as Service Lease, Short-term Lease or True Lease.

It is like a rental agreement. In this lease, the contractual period between b/w lessor and

lessee is less than full expected economic life of equipment.

Contract period ranges from intermediate to short-term. Contracts are usually cancellable either by the lessor or by the

lessee.
Computers, automobiles, etc. are leased.

Financial Management

GNIMS - MFM IV Sem

LEVERAGE LEASE

A leverage lease is used for financing those assets which require huge capital outlay. The leverage lease agreement involves three parties, the lessee, the lessor and the lender. The loan is generally secured by mortgage of the asset besides assignment of the leased rental payments. In leveraged lease, a wide range of equipments such as rail road, coal mining, pipe lines, ships, etc. are acquired.

Financial Management

GNIMS - MFM IV Sem

SALE AND LEASE BACK

Under this type of lease, a firm which has an asset sells it to

the leasing company and gets it back on lease. The asset is generally sold at its market value.

The sale and lease back agreement is beneficial to both lessor

and lessee. Retail stores, shopping centers, etc. are financed under this

method.

Financial Management

GNIMS - MFM IV Sem

CROSS BORDER LEASE

Also known as International Leasing, and Transnational Leasing.

It relates to a lease transaction b/w a lessor and lessee

domiciled in different countries and includes exports leasing. In other words, the lessor may be of one country and the

lessee may be of another country.

Financial Management

GNIMS - MFM IV Sem

ADVANTAGES

The burden and cost of potential obsolescence on the lessor.

Leasing on a short-term basis is more desirable than an acquisition of an asset in a rapidly changing field.

It may be suitable when a firm needs assets for a definite period

that is substantially less than the useful life of these assets. Leasing is more flexible than ownership, for it is less permanent

and, makes adjustments possible when the lease expires.

Financial Management

GNIMS - MFM IV Sem

ADVANTAGES (CONTD)

As leasing is treated differently from other debts and is not subjected to a close scrutiny, a company is able to obtain advantage in its financial

position.
It is possible for the manufacturers to introduce new and expensive machinery by leasing it to the lessee on a short-term basis.

In some cases, firms which are either small or have very uncertain
records of earnings are able to obtain the use of assets through leasing. A company with limited financial resources gets the assets on lease for its expansion programme .

Financial Management

GNIMS - MFM IV Sem

ADVANTAGES (CONTD)

Leasing may prove to be a convenient way for a corporation to expand gradually, especially when its earnings are inadequate for the purpose. By leasing fixed assets, a company can use the funds which would otherwise be tied up in fixed capital. Leasing should offer cost savings over direct borrowing. Lease financing should be available when an equivalent amount of debt financing is not available.

Financial Management

GNIMS - MFM IV Sem

ADVANTAGES (CONTD)

Leasing offers certain tax benefits. It also offers a balance sheet advantage and enhances a companys financial ratios. Leasing makes it possible for a firm to avoid a large immediate outlay for down-payment. Flexibility: It gives a firm more flexibility than ownership. Lack of

Restrictions
Obligation in bankruptcy: It is less than debt financing.

Financial Management

GNIMS - MFM IV Sem

LIMITATIONS

Restrictions on use of Equipment no additions/alterations.

Limitations of Financial use payout obligations, benefits of warranties.

Residual value benefit

Consequences of default of terms by Lessee. Understatement of Lessees Asset in B/S.

Double Sales-Tax, both by Lessor (purchase) and Lessee (at the time
of Lease).

Financial Management

GNIMS - MFM IV Sem

MAJOR PLAYERS

Major Players in Leasing industry in India: Independent Leasing companies - enjoy financial & technological collaboration.

NBFCs.
Manufacturer-Lessors. Banks and Financial Institutions.

In-house Lessors.

Financial Management

GNIMS - MFM IV Sem

THANK YOU

Financial Management

GNIMS - MFM IV Sem