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Lease Payments

What is 'Lease Payments'

A line item under long-term debt on a balance sheet that indicates the value of future lease payments due.

Lease payments vary widely between companies, and so it is not necessarily good to compare two companies' lease-payment figures, even if they are in the same industry. It is more valuable to compare long-term debt as a whole.

Explaining 'Lease Payments'

Lease payments can be made by individuals as well as companies. Leases are most commonly used by individuals to finance cars, but can also be used to obtain computers and land, among others things.

A company's lease payments are used in the calculation of the fixed-charge coverage ratio. This ratio helps investors see if a company can cover its fixed expenses, such as leases and interest.


Further Reading


Bankruptcy costs and the financial leasing decision
www.jstor.org [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Valuation of financial lease contractsValuation of financial lease contracts
onlinelibrary.wiley.com [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

To lease or not to lease from storage cloudsTo lease or not to lease from storage clouds
ieeexplore.ieee.org [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Valuation of asset leasing contractsValuation of asset leasing contracts
www.sciencedirect.com [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

The determinants of yields on financial leasing contractsThe determinants of yields on financial leasing contracts
www.sciencedirect.com [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

CEO ownership, leasing, and debt financingCEO ownership, leasing, and debt financing
www.jstor.org [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Valuing lease contracts a real-options approachValuing lease contracts a real-options approach
www.sciencedirect.com [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Operating leases: Impact of constructive capitalizationOperating leases: Impact of constructive capitalization
search.proquest.com [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Are debt and leases substitutes?Are debt and leases substitutes?
www.jstor.org [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …

Realized returns and the default and prepayment experience of financial leasing contractsRealized returns and the default and prepayment experience of financial leasing contracts
www.jstor.org [PDF]
… lack of flexibility in varying a firm's asset mix if assets are leased may be … possible to derive exact forms of transactions cost functions for secured debt and financial leases … preceding discussion, we expect transactions costs to be greater for incremental lease financing than for …



Q&A About Lease Payments


How do you calculate fixed charge coverage ratio (FCCR)?

You take net income before taxes minus noncash charges plus depreciation expense then divide that number by interest expense plus preferred dividends plus tax equivalent rent then multiply that number

Is it better to compare long-term debt as a whole or just one part of long-term debt such as lease payments?

It is better to compare long term debt as a whole because this includes all parts of long term debt like interest expense, principal repayments, amortization and so forth which gives you a complete picture of what your total obligations will be over time rather than just one part of your total obligations over time like only your monthly car payment or rent for an apartment building or house etc..

How do individuals use leases?

They can be used to finance cars, computers, land and more.

What does it mean if you compare two companies' lease-payment figures and they are in the same industry?

It means that it is not necessarily good to compare two companies' lease-payment figures even if they are in the same industry because it depends on each company's situation.

What are some characteristics that distinguish a finance lease from other types of leases?

The main characteristic that distinguishes a finance lease from other types of leases is that it transfers substantially all risk and rewards to lessee.

Can individuals also use leases for things other than cars like computers or land etc.?

Yes, they can also be used for other things besides cars such as computers or land etc..

What are examples of assets typically leased under a finance agreement?

Assets typically leased under a finance agreement include aircrafts, vehicles, computers and office equipment.

What is lease payments?

A line item under long-term debt on a balance sheet that indicates the value of future lease payments due.

What is a finance lease?

A finance lease is a type of lease in which the legal owner of the asset for the duration of the lease, while the lessee not only has operating control over the asset, but also some share of the economic risks and returns from change in valuation of underlying asset.

Why would someone choose to enter into an operating instead of financing agreement for an asset?

There may be tax benefits for lessee to enter into leasing rather than purchasing an asset. This may be motivation to obtain financing instead of purchase.

Who makes lease payments?

Individuals and companies make lease payments.

How are leases used by businesses?

Leases are most commonly used by businesses to finance equipment.

What does a lease payment vary widely between companies?

It varies widely between companies.