System enables users to model lease vs buy scenarios for capital assets, showing the impact of the decisions over time on a side-by-side report

Description

This function enables users to simulate and compare the financial impacts of either leasing or buying capital assets over a given time, presenting the results in a side-by-side report. Having this comparison readily available allows companies to plan and manage their capital expenditures more effectively, leading to more informed decision-making.

Example Use Case

Scenario: A mid-market company plans to acquire new manufacturing equipment. Due to budget constraints, the company is undecided whether to lease or to buy these assets. They want to view how each decision will impact their finances over time.

Solution: In the CPM software, the finance team models both scenarios: leasing and buying the assets. They input the relevant variables for purchasing such as purchase price, maintenance costs, tax implications, insurance, depreciation and so on. For the leased asset, they include lease payments, initial fees, maintenance, tax, interest, return conditions and so on. The software then calculates and displays side-by-side reports showing the long-term financial impacts of both decisions. This comparative data provides insights for the management team in making the most cost-effective decision based on the company's financial goals and condition.

Considerations

This is made complex in Excel when analyzing more than one lease vs buy asset at a time. Automating this by including all of the potential inputs as listed above can make this decision process take hours instead of days. It is a complex functionality, especially with the inclusion of potential tax impacts - those can have far reaching implications for a business beyond just capital asset planning. That is why it is best if this functionality is tied to a broader organizational financial model.

Ideally the system can put these side by side, and also create visualizations showing break-even on purchase vs lease. Reporting should be down to the individual asset, be able to show many assets compared simultaneously.

Questions to Ask a Vendor

• Built-In Scenario Modeling: Does your CPM software have a built-in feature for modeling lease versus buy scenarios for capital assets, or is an additional tool needed?
• Customizable Parameters: How flexible is the software in accepting a variety of financial parameters for calculations? Can we include additional parameters as they come up?
• Report Clarity: How clear and easy to understand are the side-by-side comparison results? Are there visualizations along with row/column reports?