Capital Lease Case Study: Retail Clothing Company

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Capital lease equipment recorded as an asset, depreciation, and books. Because is to pay on the loan, payment record for the account of overall loan time limit. Operating lease record for operating expenses, no relevant expenses. In the review, in a capital lease, the equipment has been booked and the corresponding assets, long-term liabilities and operating leases, it is recorded as expenses. Lease equipment advantage, most enterprises, do one of two ways, either through the financing lease or an operating lease. Through with capital lease, the lease payment facilities with the passage of time, and officially take over the equipment, the lease expires. With operating lease on the other hand, just rent the equipment in the specified amount…show more content…
Conservative management practice is in prefer to use debt to increase profits. Actively manage the rapid growth of the company to try, significant amounts of debt is used to expand the company's growth in earnings per share (EPS).Utility companies often have more earnings stability. The company has less business risk because of their stable income stream. However, retail clothing company more variety in its earnings potential. Because the clothing retail sales is through the development trend in the fashion industry, driven by the main retail clothing company operating risk is much higher. Retail clothing company will have a lower ratio, optimal leverage for investors to feel comfortable to meet with the company, in both good bad ability of capital structure and their responsibilities. Market conditions may significantly affect capital structure situation of the company. Under the assumption that a company need to borrow money for new plant. If the market is struggling, meaning investors are limiting companies to enter, because of concerns about money, borrow may be higher than the interest rate the company will pay. In this case, it may be prudent companies will have to wait until market conditions return to a more normal state before the company tries to access funds for plants. Company is in the growth stage of its cycle, typically by the growth of debt financing, the rate of increase in lending. The conflict caused by the use of this method is that growth enterprise is usually not stable income, unproven. High debt burden, therefore, it is usually not appropriate. More stable and mature company usually requires less debt financing growth, the income is stable and reliable. The company also produces cash flow can be used in the conflict, to fund
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