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EQUIPMENT
LEASING AND ORGANIZATIONAL PERFORMANCE ON MARUM CONSTRUCTION COMPANY
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Leasing as
an easy access to assets required for operation in the realm of marketing as
basis for spurring societies to economic development through growth is
obviously the need of the industrial sector of Nigeria-Olusoga (2004) and Oko
and Anyanwu (2002). The complexities involved in leasing were due to its
mechanism. Osaze, (2003) investigated lease mechanism and it’s advent in
Nigeria. Izu, (2008) “focused on the development, awareness and opportunities
associated with leasing as well as the major constraints associated with the
practice of leasing in Nigeria. Eke (2008) emphasized on the prevailing factors
in Nigerian Economy as it makes equipment leasing very attractive as an
alternative source of capital asset acquisitions, and highlighted in the process;
the relationship between lease turnover and profitability of leasing companies.
Osaze (2003)
defines leasing as a contractbetween the owner of an asset, the lessor and the
prospective user of that asset, thelessee, giving the lessee possession and use
of the asset on payment of rentals over aperiod of time.
The lessor
retains ownership of the asset so that it never becomes theproperty of the
lessee or any third party during the tenure of the lease. Overall, small-
andmedium-sized enterprises constitute a significant sector in any economy.
Access to
finance is one of the most widely discussed issues in recent times among
financial experts world over. This is because it has become the major hindrance
to industrialization. According to Adam and Hardwick (2008) ineffective
domestic investment, poor economic growth and slow pace in poverty reduction
experienced in most nations of the world is as a result of lack of access to
affordable and reliable finance or credit to power their local industries. Lack
of funds is a major challenge faced by captains of industries in developing
nations of the world. According to Smith and Wakeman (2005) organizations exist
in competitive environments and they continuously employ mechanisms that make
them take lead in their line of businesses.
The quest
for good financial management strategy is not contestable because every
business needs a good and dependable cash flow to grow their businesses. This
has made it necessary for corporate bodies to seek for ways of reducing cost of
operations especially when it comes to asset acquisition. In today’s fast paced
business environment, acquisition of modern equipment is imperative for long
term growth and development but funds to acquire these equipment are not
accessible. Gabara and Todaran (2011) observe that there is need as a matter of
urgency for industrialists to develop other innovative financial products that
would circumvent access pitfalls associated with traditional forms of
financing. One form of such financing that has the ability to emerge as an
innovative form of financing is lease financing (Westley, 2003).
There is no
doubt that most organizations need a lot of equipment and machineries to embark
on smooth operations inspite of the fact that these equipment and machineries
are costly. However, specialists have discovered that these equipment and
machineries can be leased rather than purchased outright in order to have
sufficient and adequate capital for operations. According to International
Finance Corporation (IFC) (2004) leasing in its simplest form is a means of
delivering finance. It is cheaper than the traditional means of borrowing.
Miller (1990) is of the opinion that leasing, in effect, separates the legal
ownership of an asset from the economic use of the asset. However the curiosity
about the emergence of financial leasing as a common method of funding capital
equipment led too much of the early research into the choice between leasing
and buying.
1.2
Statement ofthe Problem
The research
problem lies in the absence of the use of non-traditional methods of financing,
such as leasing, which can be used by Marum Construction Company, as industrial
companies need to finance some of their projects due to lack of financial
liquidity for these establishment.
The political
changes at the end of the eighties of the twentieth century have led to
unprecedented economic transformations represented by moving trend towards
market economy, and the adoption of the privatization policy which gave the
private sector the largest relative weight in the economic activity , and
entailed the search for methods of financing new and more flexibility to suit
the conditions of the market economy to finance large capital equipment in the
infrastructure sectors, and the implementation of programs of structural
reforms to replace the declining traditional funding sources Despite the
importance of lease in the work of industrial companies, but most companies do
not rely on leasing in their operations.
1.3 Purpose of the study
The main aim
of the study is to investigate Equipment leasing and organizational performance
on Marum construction company.The study is aim at achieving the following
objectives:
1. To
identify the impact of Equipment leasing on the financial performance of Marum
Construction Company.
2. To
identify the impact of leasing on the profits of Marum Construction Company.
3. To
identify the impact of financial leasing on the financial risk in Marum
Construction Company.
4. To
identify the impact of equipment leasing on the liquidity in Marum Construction
Company.
1.4 Research
Questions
Here,
certain questions are raised; the provision of answers to them will be
controlling the idea of the research work. The questions pertain the crux of
the matter and are statements of major problems to be encountered as the
progress is made on the work. The questions, which are interdependent, include
the following ones:
1. Does
leasing enhance the financial performance of Marum Construction Company?
2. Does
Leasing intend to achieve profits for Marum Construction Company companies?
3. Does
leasing affect the risks of Marum Construction Company?
4. Does
leasing have an effect on the liquidity of the Marum Construction Company?
1.5 Research
Hypotheses
Ho: There is no significant relationship between
equipment leasing and financial performance of an organization.
1.6 Significance of the Study
The
investment funding is the cornerstone of infrastructure projects in general and
industrial companies in particular, and because of the high capital costs as
well as the continued need for working capital in the operational phases of the
maintenance, replacement, and renewal of the productive assets to maintain
levels of productivity and to improve it if possible, and in this context the
lease is one of the methods of funding that has being introduced as a
significant funding method in the recent times as a suitable tool to face the
global challenges related to funding sources.
In addition
to being a system of financing designed to attract savings necessary new
capital market, it also achieves a lot of advantages through the modernization
of equipment and selection of advanced technology necessary to raise production
efficiency and increase competitiveness.
The leasing
is the perfect solution in many circumstances where there are no sources of
funding necessary or rising costs as the cost of other funding sources, and the
importance of research is also came through the international attention through
the issuance of several accounting standards, which describes the accounting
treatment for leases and how it is disclosed, such as the International Accounting
Standards (IAS 17).
1.7 Scope of
the Study
The study
examines equipment leasing and organizational performance using Marum
Construction Company, Port Harcourt as case study. Findings and recommendations
from the study are limited to this area and activities of the company between
2010 to 2015 as the researcher could not cover a wider geographical area and
time frame due to the limitations of the study.
1.8
Limitation of the Study
Financial
constraint– Insufficient fund tends to impede the efficiency of the researcher
in sourcing for the relevant materials, literature or information and in the
process of data collection (internet, questionnaire and interview).
Time
constraint– The researcher will simultaneously engage in this study with other
academic work. This consequently will cut down on the time devoted for the
research work.
1.9
Definition of Terms
Equipment:
Tangibleproperty (other than land or buildings) that is used in the operations
of a business. Examples of equipment include devices, machines, tools, and
vehicle.
Lease: A
lease is a contractual arrangement calling for the lessee (user) to pay the
lessor (owner) for use of an asset. Broadly put, a lease agreement is a
contract between two parties, the lessor and the lessee.
Organization:
an organized group of people with a particular purpose, such as a business or
government department.
Organizational
Performance: Organizational performance comprises the actual output or results
of an organization as measured against its intended outputs (or goals and
objectives).
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