Comparison between Capital Lease & Opearting Lease for lessor:

	Sales-type	Operating Lease
At inception
Profit	None	Yes
Assets	increase	no change
During Lease term
Profit	more earlier	more later
Total CF	same	same
CFO	less	more

Notes:
· CL: create asset, immediate income to shareholder’s equity => lower leverage ratio
· Total income over lease life same for both, i.e. recorded profit + interest revenue=sum (lease payment-depreciation)
· CL: gains from sales & interest income belongs to CFO, OL: all lease payments belongs to CFO

Impact between sales type lease and direct-financing lease
· Impact at inception of the lease:
· Direct-financing lease has no impact.
· Sales-type lease results in an increase in revenue, net income, current assets due to the gross profit booked upfront. It also increases CFO and decreases CFI.

Impact over the life of the lease:
· Direct-financing lease results in a relatively higher interest income {this includes gross profit from sale}, and relatively higher CFO and lower CFI than a sales-type lease.
· Net cash flows are same for both methods.