Question

Is it better to lease or to buy an asset in business?

Answer 1

Well it is normally a question which will be answered depending upon the decision of the management and also would require several aspects to be looked around while deciding so.

Here mainly we consider the following like, whether the assets is meant for partial use or permanent use and if it is for partial use say for a specific task completion, it is advisable to lease it because , after the completion of that task it would be of no use to the organization and if it is purchased in that case, the company will incur holding and maintenance costs which will increase unnecessary expenditure to the firm.

At times, by using various costing and financial management techniques it would be better to purchase an asset rather to lease it because it will be both economical and profitable to the management.

So finally the answer will be, it all depends upon the period for which the asset will be useful, nature of the business and costs associated with holding the asset and lease terms and lease payments , which in short could be termed as situation and purpose.

Finally it will be the decision of the management to choose an option among the above options in such a way it will help the organization to increase its overall profitability.