Leasing - "It is the use of equipment, not the ownership, that generates profit"

Research Paper (undergraduate) from the year 2003 in the subject Tourism - Miscellaneous, grade: 1,0 (A), Stralsund University of Applied Sciences (University of Applied Sciences), course: Finance, language: English, abstract: ¿To lease or not to lease ¿ a financing decision¿

Companies and experts in special literature often discuss the question whether it is cheaper for a company to buy certain goods on credit or with its own capital. When buying a certain good we moreover have to differentiate between goods that are purchased on lease or bought on credit. This paper does not deal with the fundamental question whether to buy on credit or to lease as it has been proved the advantages and risks of leasing.

The question now is why do companies nevertheless discuss about buying or leasing? Why do companies decide on leasing a wide range of goods from typewriters to cars, trucks and even complete industrial plants? About 11 % of all goods are leased in Germany at the moment. 53 % of which are leasing transactions involve cars. First of all there are considerable differences with regard to the drawing up of a balance sheet. Goods that are bought have to be capitalized with their initial costs while goods that are leased do not have to be shown in the balance sheet of the leaseholder.

Companies do follow completely different strategies regarding this subject. HENKEL (chemical industry) and RTL (broadcasting company) on the one hand have leased all of their cars explaining that this is the cheapest alternative for them. Bayer and 3M Deutschland on the other hand use the same explanation but they buy their cars. Car policies are even different between various subsidiaries of one company.