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Captive Financing: The Economic Advantages ' A Detailed Financial Analysis

By Bill Bosco
February 28, 2006

Captive finance has become a major contributor to the earnings of U.S. manufacturing companies. Per the CFO Magazine, March 2003 article titled What Goes Around, a Morgan Stanley study says that more than 28% of all revenue of S&P 500 companies comes from captive finance activities. This is understandable as, not only does captive finance add revenue to the consolidated results of the parent, there are several economic advantages available only to U.S. captive finance companies and not available to bank lessors or independent finance companies that vie for their business or compete against them. There is also the customer relations factor that is hard to measure and is always in jeopardy when using a third-party vendor finance company.

This article analyzes the financial impact of the economic advantages available to a captive finance company that leases the equipment it manufactures.

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