Ever think of how companies acquire assets that they require in our country? Whether for startup launch or gearing up towards new horizons asset acquisition is the vital aspect. Let’s dive into the methods for creating asset base by the companies.
Methods used to acquire assets for the company
Here are some methods that are used to acquire assets for the company: – Direct Purchase Direct Purchase is considered as the simplest method of all when it comes to methods for acquiring assets. It involves buying assets completely. For Instance, you make a payment and buy car and the car(asset) is yours. In this method the requirement for investment is high but at the same point it provides control and ownership over the asset. Example: Consider Tata Motors investing in cutting-edge robotic gear for their production lines. They pay a substantial amount upfront, but the resulting boost in efficiency and quality justifies the expense. Lease Agreements Companies that do not have a lot of capital usually rely on this method. It can be considered more likely than renting an apartment, and you have to pay the required fee to use the apartment with no commitment to ownership. Example: A tech startup leases high-end servers to manage its growing data needs. This approach allows them to access the latest technology without the burden of full ownership. Hire Purchase Hire purchase is considered the middle method between direct purchase and leasing. In this method, some amount is paid while purchasing an asset, and the rest is paid in installments. When the buyer pays the total amount, ownership gets shifted to the buyer. Example: An agricultural firm acquires tractors through hire purchase. This method allows them to manage their finances effectively while obtaining essential equipment for growth. Vendor Financing Vendor financing is a creative solution where the seller finances the buyer’s purchase of their product. It benefits both parties—the buyer avoids a cash crunch, and the seller secures the sale. Example: An electronics retailer offers vendor financing for small businesses purchasing computer systems in bulk. This boosts sales for the retailer and equips businesses with necessary technology. Government Grants and Subsidies The Indian government offers various grants and subsidies to support asset acquisition, particularly in sectors like agriculture and renewable energy. These schemes reduce the financial burden on businesses. Example: A solar energy company receives a government subsidy for solar panels. This reduces their initial investment costs and promotes renewable energy adoption. Joint Ventures Joint ventures allow companies to pool resources for a shared project. This method leverages the strengths of each participant, similar to forming a superhero team. Example: An Indian pharmaceutical company partners with a foreign firm to establish a new research facility. They share costs and expertise, accelerating the asset acquisition process. Asset Securitization Asset securitization involves converting assets into marketable securities. This method is primarily used for financial assets but can also apply to physical assets. It’s like selling tickets for a future blockbuster and using the proceeds to finance the movie. Example: A real estate company securitizes its commercial properties to raise funds for new projects, leveraging existing assets to acquire new ones.
Questions to Understand your ability
Q: From the following which method is considered as the simplest method?
  1. Lease Agreements
  2. Hire Purchase
  3. Direct Purchase
  4. Vendor Financing
Q: Which method involves paying for an asset in installments with ownership transferring to the buyer after the total amount is paid?
  1. Joint Ventures
  2. Hire Purchase
  3. Government Grants and Subsidies
  4. Direct Purchase
Q: What method is often used by companies that do not have a lot of capital and involves paying a fee to use an asset without ownership commitment?
  1. Asset Securitization
  2. Lease Agreements
  3. Direct Purchase
  4. Vendor Financing
Q: How does vendor financing benefit the buyer?
  1. By providing full ownership immediately
  2. By avoiding a cash crunch
  3. By reducing the need for any payment
  4. By converting assets into marketable securities
Q: Which method allows companies to pool resources for a shared project, leveraging each participant’s strengths?
  1. Government Grants and Subsidies
  2. Asset Securitization
  3. Direct Purchase
  4. Joint Ventures
Conclusion Understanding the best method for asset acquisition is essential in the dynamic Indian market. Each method has its advantages and disadvantages, depending on your company’s needs, financial health, and goals. Choose wisely to ensure sustainable growth and success.
FAQ's
Direct Purchase involves buying an asset completely, providing full control and ownership.
It’s straightforward; you make a payment and the asset is yours.
In this Agreements buyer pays a certain amount for the asset without holding an ownership.
Companies that don’t have enough capital usually relies for lease agreements to meet their requirements without investing heavy.
In this method, some of the cost of the asset is paid at first, and the rest is paid in installments until you get ownership.
In Vendor Financing, the seller finances the buyer’s purchase, helping the buyer avoid a cash crunch and ensuring the seller secures the sale.
This is a method where government helps in acquiring assets by providing subsidies and grants.
It is a method in which companies pool their resources for relative projects by leveraging each other’s strengths.