Introduction
Financing leases can be categorized into three subgroups. Namely, they can be operating, financing, or a combination. Operating leases allow hospitals to rent equipment without having ownership rights for the goods being leased.
On the other hand, financial leases allow for the temporary use agreement to be accounted for as ownership. Last but not least, combination leasing incorporates some aspects from the previously mentioned types of leases. Each option benefits managers for financial planning, as the budget does not experience major setbacks, and purchasing equipment is more disruptive than opting for a lease.
Pros and Cons of Operating Leases
Operating leases correlate with both advantages and disadvantages. On the one hand, the downside of depreciation is reduced as ownership is not acquired. Furthermore, planning the budget is more efficient as there is a regular payment, which is reduced compared to the full price of the product if it were to be purchased. According to researchers, operating leases are also advantageous in minimizing tax rates (Ma & Thomas, 2023).
At the same time, equity is not built, and one may pay more through an operating lease compared to purchasing the product if the long-term effects are considered. Moreover, entities do not eventually gain ownership compared to the cases in which financing and combination leases are selected (Devos & Li, 2020). Nonetheless, managers opt for operating leases due to the fact that the positive aspects are more prominent than the negative ones.
Conclusion
Overall, leasing allows for a reduction in major budget disruptions and a minimization of low initial costs. Additionally, the monthly payments are reduced. As a result, the economic benefits of the financial solution are critical to consider for healthcare facilities that require costly equipment or similar investment pieces. However, the type of lease is a considerable characteristic that is to be selected depending on the organization’s aims and goals.
References
Devos, E., & Li, H. (2020). Do firms lease to hedge? CEO risk‐taking and operating lease intensity. European Financial Management, 27(3), 426–459. Web.
Ma, M. (Shuai), & Thomas, W. B. (2023). Economic consequences of operating lease recognition. Journal of Accounting and Economics, 75(2–3), 101566. Web.