Final Presentation

Financial Market Research

Topic: Leasing Companies

Introduction:

A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.

Histroy:

Leasing was introduced in Belgium in November 1961 following the creation of the Leasing company, the S.A. LOCABEL. It took however another 6 years for leasing to be given a legal status through the law promulgated on November 10 1967 (Royal Decree n 55). From its birth in 1961, leasing has gone through the following evolutionary phases.

Conti

From 1961 to 1980: leasing did not grow in a spectacular manner

mostly due to the fact that investing without becoming the owner the goods was a psychological barrier difficult to overcome, and because of other financial solutions companies were more familiar with.

From 1980 to 1993: Intensifying competition, deteriorating economic

environment and the slowdown of investments had a major impact on leasing: the market shrank by 11% in 1992 and 18% in 1993. These unfavorable factors forced many leasing companies to review their strategy as they could reach neither their turnover targets nor their breakeven point. This difficult period was the trigger for a major market restructures: many leasing companies simply stopped their activities or were sold off.

Conti

From 1994 to 1999: In 1994, the leasing

marked turned around: sales figures went up as major growth returned. This favorable trend was confirmed in 1999. During the same period, the leasing market, and particularly the car leasing market progressed from financial leasing to operational leasing providing more integrated services.

Regulatory Requirements

Presenter: Nasrullah 5507

Regulations for establishing Leasing Company

He has not been associated with any illegal banking business, deposit taking or financial dealing. He and the companies in which he is a director or major shareholder, have no over-due loans or installments outstanding towards bank or NBFIs

Conti

Neither he nor the companies in which he is a director or major shareholder has defaulted in the payment of taxes as on the date of application He has not been sponsor, director or chief executive of a defaulting cooprative finance society or finance company

Conti

He has never seen been convicted of fraud or breach of trust or of an offence involving moral turpitude or removed from service of misconduct.

Kinds of Leasing

Presenter: Fahad 5521

Kinds of Leases:

Finance Lease:

Under a finance lease, the finance company owns the asset throughout and the agreement covers a set period considered to be the full economic life of the asset.

Operating lease:

An operating lease runs for less than the full economic life of the asset, and the lessee is not liable for the financing of its full value.

Conti

Capital Lease:

Type of lease classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing.

Direct Financing Lease (Direct Lease):

A non-leveraged lease by a lessor (not a manufacturer or dealer) in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.

Source and Uses of Funds

Presenter: M. Wali 5623

Source of Funds

Capital Reserves: Capital reserve is one of the most vital source of funds for leasing.
Borrowings from financial institutions: E.g. banks, building societies, credit unions, trust companies Inter-company borrowings

Uses of Funds

Cash and Bank Balances: Amounts held in the

bank and in cash. Found in the Current Assets section of the Balance Sheet.

Investments: Receivables

E.g. such as factories, machinery, houses, and goods inventories.

Debt Factoring Hire Purchase

Cost Benefits

Presenter: Ashraf Ali 5520

Cost Benefits

Less capital-intensive than purchasing Safeguard cash flow Capital assets may fluctuate in value. Leasing shifts risks to the lessor. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term.

Conti

Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Lease payments are considered expenses rather than assets In some cases a lease may be the only practical option; for example, a small business may wish to open a location in a large office building within tight location parameters.