Methodology

How the numbers work

Last reviewed: 19 September 2026Applies to the calculator as deployed on that dateWritten by Ali Al Hajj

1. What you enter

Four numbers describe the deal. Everything else has a default you can override under Assumptions.

• Acquisition cost (AC) — what the machine costs you, delivered. The whole model is expressed as a return on this figure.
• Rental rate per month (R) — what the customer pays for a full month on hire.
• Hours per month (H) — the service-meter hours the machine runs in a full month on hire. This drives maintenance cost, not revenue.
• Time utilisation by year (TU_y) — the share of the year the machine is out on hire, entered for each of the five years. The default is 70 % every year.

2. The cost assumptions

These are the tool's defaults. Every one can be changed and the whole model recalculates.

3. The monthly building blocks

The model works in months and adds them into years. Four costs are fixed per month whether the machine is on hire or not; one varies with hours.

Depreciation per month = AC × 0.90 ÷ life
Financing per month = AC × 7 % ÷ 12
Insurance per month = AC × 0.5 % ÷ 12
Repair & maintenance per month = rate per hour × H × TU_y

Those four together are the direct cost. Overhead and indirect cost are taken as percentages of the year-one direct cost, then held constant for the life of the machine:

Overhead per month = direct cost (year 1) × 5 %
Indirect cost per month = direct cost (year 1) × 10 %

Rental income per month is simply R × TU_y: a 5,000 rate at 70 % utilisation earns 3,500 a month on average over the year.

4. Profit and loss, year by year

Each year is twelve months of the blocks above (fewer in the final year if the rental life is not a multiple of twelve). In the year the machine is sold, two more lines appear: the sale price as income, and the remaining book value written off as a cost.

Total income = rental income + sale price (final year only)
Total expense = depreciation + financing + insurance + R&M + overhead + indirect + book value written off (final year)
Profit before tax = total income − total expense
Tax = total income × 1 %
Profit after tax = profit before tax − tax

Book value at sale is AC minus all depreciation charged, floored at zero. With the 90 % basis over the full life, that is the 10 % residual.

5. Cash flow and balance sheet

Cash starts at minus the acquisition cost and each year adds the operating cash flow:

Operating cash flow = sale + rental − R&M − insurance − financing − overhead − indirect − tax

Depreciation is not cash, so it is excluded here; it is the difference between the P&L and the cash line. The balance sheet carries the machine at book value (property, plant and equipment), cash at the running total, and retained earnings as the sum of profit after tax. Assets always equal equity; if they do not, the model has a bug and the page shows a variance.

6. The headline numbers

Rate floor

The monthly rental that exactly covers every cost at 100 % utilisation, grossed up for tax:

Rate floor = (direct cost + overhead + indirect) ÷ (1 − tax rate)

The card on the home page divides this by your utilisation to show the rate you must actually charge: at 70 % utilisation the floor is 1 ÷ 0.7, about 43 % higher, because idle months still cost money.

Return on investment

Cumulative, annualised, and always assuming the machine is sold at the end of the year in question:

ROI (year y) = (rental to date + sale price in year y − cash costs to date − AC) ÷ AC ÷ y

Cash costs here are financing, R&M, insurance, overhead and indirect; depreciation is left out because the sale price already reflects what the machine lost in value. The tool also splits ROI into the part earned by renting and the part earned by selling, and warns when the sale is doing the work.

Payback

The first month in which cumulative cash — starting at minus AC, adding each month's rent, subtracting each month's cash costs and tax, and adding the sale price in the final month — reaches zero. “Never” means it does not happen within the rental life.

Financial utilisation

Financial utilisation = R × 12 × weighted TU ÷ AC

Annual rental revenue as a share of what the machine cost. The default target is 33 %: a machine that earns a third of its price every year.

Weighted time utilisation

The simple average of the five yearly TU values. Default target 70 %.

Gross profit and rental profitability

GP % = (rental − R&M − insurance − depreciation − financing) ÷ rental
Rental profitability % = (rental − all costs − tax on rental) ÷ rental

Both are year-one figures. GP looks at the machine alone; rental profitability adds the overhead and indirect it has to carry.

7. Resale value

The sale price in year y is AC × (1 − d)^y, where d is the annual decline for that model family. You can type your own sale prices for each year instead; the tool then uses those. Resale is the single input with the largest effect on ROI and the least certainty, which is why the tool tells you how much of the return depends on it. The depreciation guide explains how to build a curve from your own disposals.

8. The what-if matrix

The grid shows year-one return at five rates (your rate and ±10 % and ±20 %) against six utilisations. A cell is green only when the P&L for that year is profitable and the ROI target is met — both, not either. It is the fastest way to see whether the fix for a losing machine is price or hours.

9. What the model does not do

• It does not know your market. The rate floor is a cost, not a price; the market decides the price.
• Overhead and indirect are fixed from year one; if your fleet grows, they will not shrink per machine in the model.
• Financing is flat on the full cost, not an amortising loan. It overstates interest slightly in later years and keeps the arithmetic honest and checkable.
• Tax is a placeholder rate; replace it with yours.
• Currency conversion uses a live rate for display only; the model runs in the base currency.