What are the implications for analysis if a company has significant operating leases?

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Expert Solution

Implications of analyzing a customer with large operating leases:

The assets financed and the debt involved with an operating lease are not included in the balance sheet.
Future amounts owed as lease commitments are recorded only as a footnote to audited financial statements.
Since operating leases are not capitalized, the debt to net worth of your customer will be understated when doing conventional ratio analysis.

A company with large operating leases, on a comparable basis with other companies, will tend to have higher net income in early years and lower net income in the later years.

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ekkarill92 answered 1 year ago

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