East West University

Financial Analysis Between Two Leasing Companies

ACT: 421
Section: 02

Submitted to
Tania Hamid
Senior Lecturer
Department of Business Administration
East West University

Submitted by
Ha-Mim Abedin
ID: 2017-1-10-022
East West University
Date of Submission: 7 January, 2021
 Letter of Transmittal
07 January 2021

Tania Hamid
Senior Lecturer
Department of Business Administration
East West University

Subject: Submission of Termpaper for Leases

Dear Madam,

With due respect and great pleasure, I am submitting my termpaper on “Comparative financial
analysis between two leasing companies.” The purpose of the paper is to show the result leases
term and I am specially showing the condition of lease in Bangladesh. The report attempts to
describe the knowledge that I have gained during the study. Despite several constraints, I gave my
full effort to make this report a meaningful one. However, there may be shortcomings. I would be
grateful if you consider those as excusable.
I have tried sincerely to comprehend and translate my knowledge in writing this report. I enjoyed
the work very much and gladly attend any of your call to clarify on any point, if necessary.

Sincerely yours
Ha-Mim Abedin
ID: 2017-1-10-022
Department of Business Administration
East West University

1|
Page
 Table of Contents

Executive Summery ................................................................................................................................................ 3

1. Definition of Lease .............................................................................................................................................. 4
2. The Dealers of Lease Agreement....................................................................................................................... 4
3. Classification of Lease ........................................................................................................................................ 5
4. Capitalization Criteria ....................................................................................................................................... 6
5. Financial analysis between two leasing company & 6.Lease in Bangladesh .............................................. 6-9
7.Conclusion & 8.References ............................................................................................................................... 11

2|
Page
 Executive Summery
Every human being in this world must be able to define themselves. There are many ways that
people take to maintain their lives. One way that can be taken to maintain his life is to run a
business. Along with the times the business world has become increasingly widespread. With the
development of the business world, the need for funds is inevitable both by individuals and
business people who are members of a legal entity in developing their business and in improving
the quality of their products, so that a satisfying profit and level of needs can be achieved others.
To meet these funding needs, more and more people are establishing a financial institution that is
engaged in the provision of funds or goods that will be used by other parties in developing their
business. One, of the fastest growing financing institutions is leasing. At present, rent is one way
for companies to acquire assets or ownership without having to go through a prolonged process.
Everything has been arranged by a leasing company provided by various companies. rents also
one of the high- risk avoidance measures that are currently being realized by existing entrepreneurs

3|
Page
1. Definition of Lease
In the beginning, leasing is better known as leasing, leasing itself comes from the word lease,
which means rent or more commonly interpreted as renting. So, lease gives the facility to possess
and operate the asset without owning the asset. It is a method of where huge capital outlays are
substituted by periodical rental payments. So, the definition of the lease, lease is a contractual
agreement between a lessor and a lessee. This arrangement gives the lessee the right to use specific
property, owned by the lessor, for a specified period of time. In return for the use of the property,
the lessee makes rental payments over the lease term to the lessor.
Under a typical leasing transaction, a lessor acquires the title to the equipment to be leased by
paying 100 per cent value for the asset identified by the lessee and then leases it out to the lessee
under a lease agreement for a period normally less than the depreciable life of the asset. Under the
lease financing, an asset can be acquired without incurring the initial purchase cost by just making
payment of lease rentals over a specified period of the lease contract. It is more or less an
offbalance sheet financing, where neither the acquisition of asset nor the loan is to be shown in the
financial position statement. The important features of lease contract are as follows:

a. The lease finance is a contract.

b. The parties to contract are lessor and lessee.
c. Equipment are bought by lessor at the request of lessee.
d. The lease contract specifies the period of contract.
e. The lessee pays the lease rentals to the lessor.
f. The lessee claims the rentals as expensive chargeable to his income.

2. The Dealers of Lease Agreement

There are three types of dealers who lease the property and I am going to describe these types one
by one.

1. Bank: Banks are the biggest factor in the leasing business. They are being able to purchase
the assets at less cost than others by their low-cost fund. Banks have expanded their product
lines in leasing area so that they can made some money. Thus, banks like Wells Fargo,
Chase, Citigroup, and PNC have substantial leasing subsidiaries.

2. Captive Leasing Companies: These companies’ main objective is to perform leasing

operations for the parent company. Basically, they are considered as subsidiaries.
Companies like Caterpillar Financial Services Corp. (for Caterpillar), Ford Motor Credit
(for Ford), and IBM Global Financing (for IBM) facilitate the sale of products to
consumers. For example, suppose Pran-RFL company wants to acquire a number of laptops

4|
Page
 from Asus. In this case, Asus will offer to structure the transaction as a lease rather than as
a purchase. Thus, Asus provides the financing rather than an outside financial institution.
Captive leasing companies have the point-of-sale advantage in finding leasing customers.
That is, as soon as Asus receives a possible order, its leasing subsidiary can quickly develop
a lease-financing arrangement.

3. Independents: Independents are the final category of lessors. Their market share has
dropped as banks and captive leasing companies have become more aggressive in the
leasefinancing area. Independents do not have point-of-sale access, nor do they have a low
cost of funds advantage. What they are often good at is developing innovative contracts for
lessees. For example, International Lease Finance Corp. is one of the world’s largest
independent lessors.

3. Classification of Lease
There are two types of lease:
1. Operating Lease: An operating lease is similar to the financial lease in almost all
aspects. This lease agreement gives to the lessee only a limited right to use the asset. The
operating lease is generally for a short-term, where the lessor is usually the manufacturer
of the asset, who want to increase his sales by allowing the customers to pay in installments
for a shortterm and ultimately the title to the asset will be transferred to the lessee on
making full payment. In some cases, the lessor keeps the title to the goods and he continues
to lease the asset to other party until the life of the asset is completed. In the operating
lease, it is the responsibility of the lessee to maintain and upkeep the asset properly when
the asset is under his control. The lessor will enjoy the depreciation claim and the lessee
will show his lease rentals and asset maintenance expenses as business expenditure. At the
end of the life of the asset, it will be sold off by the lessor to get the salvage value. This
lease is preferred in the following situations:

➢ When the long-term suitability of asset is uncertain.

➢ When the asset is subject to rapid obsolescence.
➢ When the asset is required for immediate use to tie over a temporary problem.

2. Capital Lease: A lease is considered as a capital lease if the lessor intends to recover
his capital outlay plus the required rate of return on funds during the period of lease. It is a
form of financing the assets under the cover of lease transaction. In this type of leases,
lessee will use and have control over the asset without holding the title to it. The lessee
acquires most of the economic values associated with the outright ownership of the asset.
The lessee is expected to pay for upkeep and maintenance of the asset. The essential point
of this type of lease agreement is that it contains a condition whereby the lessor agrees to

5|
Page
 transfer the title for the asset at the end of the lease period at a nominal cost. At the end of
lease, it must give an option to the lessee to purchase the asset he has used at the expiry of
the lease. Under this lease usually 90% of the fair value of the asset is recovered by the
lessor as lease rentals and the lease period is 75% of the economic life of the asset.
Practically all the risks incidental to the asset ownership and all the benefits arising
therefrom is transferred to the lessee who bears the cost of maintenance, insurance and
repairs. Only the title deeds remain with the lessor. This lease is preferred in the following
situations:

➢ When the lessee wants to own the asset but does not have enough funds to invest.
➢ The time period to use the asset is substantially long at lower lease rentals.

4. Capitalization Criteria
In order to record a lease as a capital lease, the lease must be noncancelable. Further, it must meet
one or more of the four criteria and which are

➢ The lease transfer ownership of the property to the lessee

➢ Lease contains a bargain purchase option like If I lease a land in a market price for years,
that will be capital lease.
➢ In order to record a lease as a capital lease, the lease must be noncancelable. Further, it
must meet one or more of the four criteria. For example, an asset life time is years, if I lease
that assets for 7 years, that will not be capital lease because it is less than 75%.
➢ The present value of the minimum lease payments (excluding executory costs) equals or
exceeds 90 percent of the fair value of the leased property. Suppose an assets price is
100,000 taka. If we lease that asset for 5 years and we give the annuity 100,000 taka in
every year, and that amounts present value 90% or more that it will be capital lease.
Out of these four rotaries, if one criterion fulfills, it would be called the capital lease otherwise it
would be operating lease.

6|
Page
5. Financial analysis between two leasing company :

Bay leasing & investment limited:

Bay Leasing & Investment limited is a public limited company which started its journey in
February, 1996 as a non-banking financial institution and guided under the Financial Institutions

7|
Page
 Act of 1993. From its inception Bay Leasing & Investment Limited ran its operations in a
professional manner under the able guidance and leadership of its Board of Directors. The
employees are fully committed and dedicated to its growth and have been very loyal. On account
of this the employee turnover of Bay Leasing & Investment Limited is the lowest in the industry.
The customer portfolio is well diversified and a vast number of entrepreneurs have been benefited
immensely through long term relationships.

2.United Finance Limited

8|
Page
 United Finance Limited started its journey as United Leasing Company Limited in 1989 with a
single product focus. Duncan Brothers Limited, a well-established company operating in
Bangladesh for over 150 years, Asian Development Bank, Commonwealth Corporation along
with several local and international corporations came together to form this institution. In 1995,
the Company obtained license from Bangladesh Bank as a financial institution and has been
trading in A-category shares in the Dhaka Stock Exchange. United Finance is one of the only 13
financial institutions allowed by the Government to take Public Sector deposits.

Initially United Finance focused on providing lease financing mostly to the medium sized
customers but over the years it has diversified its range of products to meet the financial needs of
clients ranging from corporate to individuals, irrespective of size.

The Company started operation as a leasing company with only one office in the capital. With the
progression of time it expanded its wings to cover areas beyond Dhaka.Now United Finance
Limited operates through 23 branch offices across the country bringing all 64 districts under its
financial coverage.

6. Lease in Bangladesh
Bangladesh is an agricultural country gradually its shifting towards industrialization.
Traditionally, people of this sub-continent were reluctant to business and trade. But as the demand
od=f time, they are inspired and inclined to rake risk and establish business enterprise. The
entrepreneurs are faced with scarcity of initial capital and if somehow, they have started business,
they face serious shortage of working capital. In such case, they run for long term direct financing
from commercial banks, specialized banks and other financial institution, but receiving long term
loan from direct financing intuitions in Bangladesh is not easy task. Leasing business in
Bangladesh is providing for the alternative financing introduced by three prominent leasing

9|
Page
 companies in Bangladesh; IDLC, ULC and PLC. Recently, some other leasing companies namely,
peoples leasing company, Bay Eastern Leasing company, Industrial leasing and Financial
Services LTD, GSP Finance and a local private commercial bank have emerged in the market

7. Conclusion:
To summarize, lease finance is appropriate for an individual or business which cannot raise money
through other means of finance like debt or term loan because of the lack of funds. The business or lessee
cannot even arrange the down payment money to raise debt. The lease works best for him. On the other
hand, the lessor, who wants to invest his money efficiently, becomes the financier for the lessee and earns
the interest.

10 |
Page
.

8. References

1. https://www.scribd.com/doc/47990314/Lease-Financing-in-Bangladesh-By-Faruk-Hossain-
BBA-13th-Batch-Dept-Of-AIS-D-U
2. https://www.amarstock.com/stock/BAYLEASING

3. https://www.unitedfinance.com.bd/Home/Irfrpt

11 |
Page
 |Page

12