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. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  6. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  4. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  2. Insurance

    Everything Investors Need To Know About Earnings

    We go over the concepts behind the excitement over the most important figure in the stock market.
  3. Investing Basics

    The Flow Of Company Information

    Learn how to gather all the pieces before you start to put together your puzzle.
  4. Markets

    5 Tricks Companies Use During Earnings Season

    Don't be fooled: Companies use all kinds of tactics to make bad earnings look good. Find out how to see through them.
  5. Bonds & Fixed Income

    Uncovering Hidden Debt

    Understand how financing through operating leases, synthetic leases, and securitizations affects companies' image of performance.
  6. Economics

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  7. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  8. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  9. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.
  10. Fundamental Analysis

    Do Stock Splits Cause Volatility?

    Since stock splits decrease the stock price, do they also increase volatility because shares are traded in smaller increments? Investopedia examines assumptions about this increasingly common ...

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!