| Item | Impact |
| CFO | Higher (more +ve) Part of lease payment shifted to CFF (under Operating Lease, all lease payment->CFO) |
| CFF | Lower (more -ve) Part of lease payment shifted to CFF |
| Net cash position | No impact CFO and CFF balance out |
| Assets | Higher Due to lease asset |
| Liabilities | Higher Due to lease liability |
| Equity | No impact |
| Depreciation | Higher Due to lease asset depreciation |
| Interest expense | Higher Due to lease liability |
| Net income | Lower Lower now, higher later |
| Profitability (ROA) | Lower Lower NI higher assets |
| Leverage (Debt/Equity) | Higher Higher liability, lower equity |
| Liquidity (Current ratio) | No impact No change in CR or CL |
| Asset turnover | Lower Due to higher assets |
| Operating income | higher as depreciation always lower than lease payment (reason: depreciation is only based on PV of all lease payment). Total income over the lease life is same for both as sum (lease payment)= sum(depreciation +interest expense). But in early years, as interest expense is higher than later years due to amortization loan, net income is lower for CL in early years. |
Financial reporting from the lessor’s perspective:
· The lessor can take the lease asset off its balance if it meets one of the four criteria for capital lessee {see above}, and two further criteria:
· The Minimum Lease Payments (MLPs) are reasonably certain to be collected and
· No significant uncertainties exist regarding the reimbursement of costs incurred by the lessor under the lease contract. If these criteria are not met, the lessor must retain the underlying assets on its balance sheet. If they are met, the lease must be treated as salestype or direct financing type lease.
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