Lease talking points

[CFAHouston]

This is for James

Following are the ratios. Lets see the effect on these by using capital vs. operating. (no refering to books)

(early years and lesse point of view)

Current Ratio
Working Capital
Asset Turnover
Return on Assets
Return on Equity
Debt/Assets
Debt/Equity
CFO
CFF
EBIT



Edited 1 time(s). Last edit at Sunday, May 7, 2006 at 01:58PM by CFAHouston.

 

[noseykibitzer]

Lease point of view...I'll bite....still having a cinco de mayo party

Current Ratio - capital lease will be lower because the current portion of the liability is recorded as CL

WC - will be higher for the operating lease because of same reason as above

Asset turnover is lower for capital lease b/c although there is higher EBIT the interest expense (denominator) will override

ROA - lower for capital lease - a whole lotta assets to cover

ROE - NI is lower for the capital lease in the early years and consequently so is equity, overall it should be lower

Debt to equity - will be higher under capital lease because of the lease liability and the lower NI that would be a lower contribution to RE(equity)

CFO - should be higher under capital lease because the depreciation gets thrown back in and the interest expense is the only outflow recognized

ahhh...getting tired now

CFF - because there is only CFO for operating lease and the payment for capital is a reduction in the liability and therefore an outflow to CFF...so lower CFF under capital lease

EBIT....higher ebit under capital lease...

How did I do....its a nice Sunday afternoon here in Philly....6th beer...Cheers.

 

[CFAHouston]

wow, have you consider taking the test while buzzing?

You did very well sir. Six beers and I wouldn't even know what a capital lease is.

Cheers