Investopedia

Operating Lease

Dictionary Says

Definition of 'Operating Lease'

A contract that allows for the use of an asset, but does not convey rights of ownership of the asset. An operating lease is not capitalized; it is accounted for as a rental expense in what is known as "off balance sheet financing." For the lessor, the asset being leased is accounted for as an asset and is depreciated as such. Operating leases have tax incentives and do not result in assets or liabilities being recorded on the lessee's balance sheet, which can improve the lessee's financial ratios.
Investopedia Says

Investopedia explains 'Operating Lease'

There are two primary types of leases: capital and operating. Capital leases are non-cancelable, and must meet at least one of the following requirements: the lease transfers ownership of the asset, the lease contains a bargain purchase option, the duration of the lease is 75% or more of the asset's expected economic life and/or the lease is worth at least 90% of the asset's value. An operating lease is one that meets none of the criteria.

Articles Of Interest

  1. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on more debt is a form of risk in the eyes of the bondholders, and therefore ...
  2. Uncovering Hidden Debt

    Understand how financing through operating leases, synthetic leases, and securitizations affects companies' image of performance.
  3. Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  4. If You Don't Mind Volatility, Deere Could Still Do Alright

    Though Deere's shares sold off after earnings, the business model is sound and rolling along.
  5. Agilent Isn't Making It Easy On Investors

    Core operating performance at Agilent needs to improve
  6. Consumer Spending As A Market Indicator

    What people buy and where they shop can provide valuable information about the economy.
  7. Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  8. Overheated Expectations Send Rackspace Investors To The Torture Chamber

    Absent a real competitive moat, it's hard to make sense of Rackspace's valuation.
  9. Mondelez Isn't As Good As Nestle, But Priced Like It Is

    Investors seem to bullish on Mondelez, given the relative performance at Kellogg and Nestle.
  10. Johnson Controls Has A Lot Of Improving Left To Do

    Analysts are projecting a big turnaround in Johnson Controls' margins, but that the downside risks are meaningful
comments powered by Disqus
Marketplace
Hot Definitions
  1. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
  2. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
  3. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
  4. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  5. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
  6. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
Trading Center