Operating ( 10% or fmv purchase option ) VS Capital lease ( $10.00 purchase option ). What is best for your company?

Many companies will need to decide whether it wishes to lease the equipment in the form of a capital lease ( $10.00 buyout), or use an operating lease (10% or fmv buyout); they also should know the difference between these two forms of financing. There are a number of differences involved when considering either form, particularly how the leased asset is accounted for. One must consider the company’s credit rating, how long the equipment is going to last, and when it will become obsolete. Taking into consideration all of these factors should help in deciding the better option for each company.

While accounting with an operating lease, it will be treated as an out and out expense and will find mention in the income statement and it will not impact the ratio of debt to worth, or any other balance sheet ratios that will have any significant impact on the creditworthiness of your company or business. As a long term option, your business may end up paying more for this form of lease rat

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