Ratio impact of lease accounting impact, accounting, always, capital, current

whew1110

Schweser Study Notes, Book 3, page 253, says current ratio and working capital are always higher for an operating lease than for a capital lease, and that debt / assets and debt / equity ratios are always lower for an operating lease than for a capital lease.
If both assets and liabilities are increased by a capital lease, then how can one be so sure that the current ratio and working capital will be higher for the operating lease, and that the debt: assets and debt: equity ratios will be higher for the capital lease?

jcfa2011

op lease = higher net income
net income flows into retained earings and then ito “book value” aka shareholders equity.
so no debt on the top, more E in the bottom = lower debt/equity.
man, you are taking me back to maY!!!! i had arrows all over my books indicating what flowed into what. : )

ishfaque

daj – how does higher income on operating lease signifies higher current ratio and working capital?

MiniMe7

op lease has no interest liability, so CR is higher.
CR = CA/CL

cyber21

i think largely it is bcoz of current portion of finance lease that is absent in operating lease… interest is rather small as compared to current potion of installment…