Reduce Balance Sheet loading
IFRS16 has brought a host of problems to companies regarding asset recognition on balance sheets. It is estimated that some asset-heavy industries will need to recognize an additional 10 – 23% of assets and payment liabilities onto their existing balance sheet. Burgeoning balance sheets place more pressure on the companies’ banking covenants, and this pressure will build even more as interest rates rise. Fortunately, AaaS keeps assets off balance sheets and preserves the status quo.
An OpEx alternative to using CapEx for working assets
As Covid recedes, the demand for new plant and machinery is returning. Unfortunately, the lengthy decision-making process for new capital outlays can often bring delays and bottlenecks. Fortunately, AaaS transforms CapEx into Opex so that instead of worrying about large upfront costs or raising funds, companies can access the assets they need without having to draw down on their precious and limited CapEx budgets.
Accelerate ESG compliance
Investors increasingly demand a better ESG record from companies, rewarding those which perform well. The trouble is going green comes at a cost. This directly impacts the company financials and indirectly impacts the investors’ returns. Fortunately, AaaS provides a different way to fund assets without a significant impact on existing capital allocations. Companies can tap into their OpEx, delivering a win-win solution for both companies and investors.
Enhanced valuation and credit standing
While growing businesses typically experience higher asset and debt levels, markets can view this as a sign of inefficiency. In fact, studies have shown that asset-light and lightly leveraged businesses are usually valued higher than their peers. Likewise, access to capital becomes more challenging as companies risk breaching covenants. Through AaaS, companies can be leaner, driving improvements of asset utilisation and returns on invested capital. The prospect of positive corporate valuations improves as do credit ratings and access to capital.
Right-size assets
A big risk with owning or leasing equipment is that it can often be left unutilized during a slowdown or pause in production. This can be a drain on companies, something that hit home during the pandemic as many businesses had to halt operations while still incurring large, fixed costs. By only incurring costs when assets are used and right-sizing assets through AaaS, companies can worry less about sweating their assets and focus on growing their business.
Variable payments adjusted to usage
While there exist a variety of ways for companies to fund asset acquisition (cash, debt, equity, leases), there is one thing AaaS does better than the rest – align cash inflows and outflows. Because AaaS works on a pay-as-you-go basis, companies can effectively time their costs to better match their revenues.
