Lease Utilization

AAA

DEFINITION of 'Lease Utilization'

A financial ratio that measures how much a company uses leasing arrangements to acquire its fixed assets. Utilization ratios come in two types, which correspond with operating leases and capital leases respectively: operating lease utilization and capital lease utilization.

INVESTOPEDIA EXPLAINS 'Lease Utilization'

Looking at the lease utilization is a good way to identify whether differences in the financial metrics of comparable firms may be due in part to differences in the way that assets are acquired. A capital lease affects the financial statements much in the same way that buying the asset on credit would. However, if a company makes heavy use of operating leases, then the assets are not reflected on the balance sheet. Therefore, due to the lower amount of assets, it may appear that the company is generating a higher return on assets. However, this could be merely an accounting phenomenon that occurs as a result of the alternative asset acquisition method.

RELATED TERMS
  1. Gross Lease

    A type of commercial lease where the landlord pays for the building's ...
  2. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Operating Lease

    A contract that allows for the use of an asset, but does not ...
  5. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  6. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
Related Articles
  1. Personal Finance

    Top 8 Ways Companies Cook The Books

  2. Insurance

    Everything Investors Need To Know About ...

  3. Investing Basics

    The Flow Of Company Information

  4. Markets

    5 Tricks Companies Use During Earnings ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center