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Leasing Financing and Business Evaluation

In: Business and Management

Submitted By tabalavi
Words 11471
Pages 46
Online Chapter 15 LEASE FINANCING AND BUSINESS VALUATION
Learning Objectives
After studying this chapter, readers will be able to describe the two primary types of leases, explain how lease financing affects financial statements and taxes, conduct a basic lease analysis from the perspective of the lessee, discuss the factors that create value in lease transactions, explain in general terms how businesses are valued, and conduct a business valuation using discounted cash flow and market multiple approaches.

Introduction
This chapter covers two unrelated topics: lease financing and business valuation. Leasing is a substitute for debt financing and hence expands the range of financing alternatives available to businesses (and to individuals). However, leasing should be used only when it offers some advantage over conventional financing. We begin this chapter by discussing factors that contribute to the large amount of leasing activity among healthcare businesses and how businesses analyze lease transactions. The valuation of entire businesses, as opposed to capital projects, is a critical step in the merger and acquisition process. In addition, business valuation plays an important role when one owner is bought out by other owners and when businesses are inherited. The second part of this chapter discusses two techniques used to value businesses.

Leasing Basics
Businesses generally own fixed assets, but it is the use of buildings and equipment that is important, not their ownership. One way to obtain the use of assets is to raise debt or equity capital and then use this capital to buy them. An alternative way to obtain the use of assets is by leasing. Before the 1950s, leasing was generally associated with real estate (land and buildings), but today it is possible to lease almost any kind of asset. Although leasing is used extensively across all industries, it...

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