On this blog, we generally discuss topics around IP telephony and unified communications. So, how then you may ask, is the impact of equipment financing on the debt-to-equity ratio of financial statements related? First, allow us this short introduction.
On the BDC blog, it is explained that the debt capacity shows both a company’s ability to service its current debt payments and its ability to raise cash through new debt, if necessary. This might include helping the company through a market downturn or helping the company take advantage of opportunities as they arise.
The debt-to-equity ratio is primarily used to evaluate a company’s ability to raise cash from new debt. That assessment is made by comparing the ratio to other companies in the same industry.
Financial strategists of various organizations tend to keep the debt-to-equity ratio as low as possible for two main reasons. First, capital is usually reserved for strategic acquisitions that are core to the organization’s mission. Second, the ability to borrow additional capital may be needed during an economic slowdown.
When looking at new IP telephony or unified communications solutions, the debt-to-equity ratio becomes an important factor to consider in a purchasing decision. CFOs and decision makers must look at the financial impact of equipment needed such as IP phones, routers, network switches and others.
Traditionally, phone companies, also known as interconnects, offer to finance-lease the equipment to facilitate its purchase with a low buy back value at the end of the term. However, fiscal rules have recently changed, and such leases are henceforth considered as a capital expense (CAPEX). This modification impacts the debt-to-equity ratio of financial statements. In other words, a lease is no longer considered a straight through operating expense (OPEX).
With this in mind, IP4B has created the TOP program, for True Opex Pricing. The TOP program is an operating lease that helps Canadian businesses keep an advantageous debt-to-equity ratio thus ensuring that the equipment needed for their IP telephony solutions does not negatively impact their financial statement. The TOP program is the ideal solution to book costs entirely as financial statement friendly operating expenses (OPEX) rather than amortization and capital expenses (CAPEX).
Should you want to know more about the TOP program, we invite you to communicate with one of our advisors at email@example.com or by phone at 514-444-4742.