Residual Value

Residual Value

What is an Equipment Residual Value?

The Residual Value of equipment is a financial term that forecasts the future market value should the asset be sold at the end of a pre-determined time.

What else should I know?

Equipment residual values are a critical part of the equipment finance industry and are a critical part of any deal where the seller and lender are 100% confident the asset is coming back at the end of a term. This happens in equipment leasing situations, which are becoming more and more common as construction contractors continue to move away from majority-owned fleets and to both leased and rented fleets.

With leasing becoming more common, having accurate equipment residuals has become ever more important.

 

In what format are residual values represented?

 

Residual values can be communicated two ways:

  • As % of initial value, e.g. 35%
  • In currency amounts, e.g. $14,000

 

To calculate a residual value, you divide the value at a future point in time over the initial value of the asset.

 

To illustrate an example, let’s use an example of a new skid steer loader:

  • Initial value: $24,000
  • Residual value at 24 months: $18,000
  • Residual value at 36 months: $12,000

 

Residual value at 24 months in % = $18,000/$24,000 = 75%

Residual value at 36 months in % = $12,000/$24,000 = 50%

Like all used equipment valuations, the amount can be communicated as a either an FMV (Fair Market Value) or an FLV (Forced Liquidation Value).

 

 

What are common lengths of time to measure residual values?

 

Residual values are values at specific points in times which generally correlate to the length of the underlying lease. The most common points in time to calculate residuals values are:

  • 24 months
  • 36 months
  • 60 months

 

 

What kind of equipment have residual values?

 

Residual values can be calculated for any equipment type, but are used for types that are most often leased. But of course, residuals can be calculated as long as you have the initial value and a confident market value at a future point in time.

The most common type of equipment-based residual values include:

  • Scissor lift residual values
  • Telehandler residual values
  • Boom lift residual values
  • Excavator residual values
  • Backhoe residual values
  • Generator residual values
  • Skid steer residual values
  • Compact track loader residual values

 

What are reliable sources of equipment residual values?

 

There are several premium, construction equipment intelligence businesses that can help you with accurate equipment residuals:

  • Rouse Services: based in Los Angeles, Rouse provides residual values in excel file format.
  • EquipmentWatch: based in Atlanta, EquipmentWatch provides a web-based residual values software platform, as well as a consulting solution for custom residuals

 

 

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