Residual Value

Studies for Leasing

Residual values are one of the most important considerations in making equipment leasing decisions. They drive lease or buy analyses, dictate lease terms and are required to accurately estimate return on investment. It is critical to work with a firm, like AccuVal, that understands the methodology for calculating residual values, is knowledgeable of numerous manufacturing environments and has access to the information needed to identify and interpret historical value trends. For existing leases, AccuVal provides information to help negotiate current market value when the estimated residual value is in dispute. LiquiTec will also facilitate the sale of any assets if the lessee elects to exercise its rights under the return provisions in the lease.

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AccuVal’s team has a highly technical background in modeling and the statistical foundation needed to run sophisticated residual value calculations. The firm also has broad expertise in over 100 industry segments so we understand firsthand how differing manufacturing environments affect the speed of physical depreciation. In addition, we routinely monitor how changes in technology impact productivity so functional obsolescence can be measured accurately. Perhaps most importantly, for nearly 20 years, AccuVal has tracked global equipment markets, capturing millions of historical transactions. This real market data is the nucleus of our analyses and allows us to accurately project future values by considering, in part, historical trends in overall market depreciation. This wealth of industry knowledge and data combined with decades of active participation in secondary markets through our sister company, LiquiTec, uniquely equips our experts to accurately estimate economic life, overall economic depreciation and salvage value (when appropriate) of assets.

Why is calculating residual value so important in equipment leasing? It is essential to understand what the projected market value of the asset will be at the end of the lease term — its residual value — in order to decide if the return on investment is highest when buying or leasing the asset. By estimating the future value of assets, lessors and lessees can each determine how much value will be lost over the anticipated term of the lease agreement and create a structure, with fair financing costs, that improves profitability. A higher residual value of an asset can reduce monthly lease payments.

How is residual value calculated? AccuVal conducts systematic due diligence to understand the factors influencing asset values and industry trends. Leveraging its proprietary asset management platform, AccuVal captures descriptive information including the asset’s original equipment manufacturer, year of manufacture, model number, serial number, and critical data pertaining to its operating capacities and specifications. Beginning with accurate, factual information makes it easy for AccuVal to automatically query its transaction database for information pertaining to comparable assets sales and begin analyzing the macro- and micro-economic variables that have impacted or are currently affecting market values. With this data, AccuVal is able to apply a variety of valuation methodologies, like linear regression, calculating residual value curves that help project future values.

A comprehensive lease analysis backed by statistically sound residual value calculations can be used to make informed lease or buy decisions and to better determine true or implicit lease rates. Analyses that are not backed by real market expertise and data run a greater risk of faulty assumptions and inaccurate conclusions. With AccuVal’s help, both lessors and lessees benefit from being able to identify risk, set recovery rates, and determine the proper return on and return of, an equipment leasing investment.