Page 19 - FINAL CFA I SLIDES JUNE 2019 DAY 9

Session Unit 8:
31. Non-Current (Long-Term) Liabilities

Financial Statement and Ratio Effects of Operating and Finance Leases, p285/286.

?
tanties

All performance ratios worse for finance lease; why do it?

• Business risk (fixed cost)/versus
financial risk (D/E) preference

• EBIT better under finance lease

• Higher CFO (because principal repayment is CFF)

• Higher net income in latter years
(interest + depreciation is less in latter years)