Glossary
Leasing
Leasing is a contractual arrangement that allows a business (the lessee) to use an asset owned by another party (the lessor) for an agreed period in exchange for periodic lease payments. Leased assets may include vehicles, manufacturing equipment, machinery, office buildings, warehouses, IT infrastructure, medical equipment, aircraft, or other business assets.
At the end of the lease term, the lessee may return the asset, renew the lease, or purchase the asset, depending on the agreement.
Leasing enables companies to access critical assets without significant upfront capital investment, making it an important financing strategy for preserving liquidity and optimizing capital allocation.
FP&A Perspective
From an FP&A standpoint, leasing decisions affect far more than monthly expenses. Finance teams evaluate lease agreements when preparing budgets, forecasting cash flows, modeling capital requirements, and assessing financing alternatives.
FP&A professionals typically analyze:
– Buy vs. Lease decisions
– Cash flow implications
– Capital expenditure (CapEx) avoidance
– EBITDA and operating profit impact
– Balance sheet implications under IFRS 16 and ASC 842
– Cost of capital and financing alternatives
– Return on invested capital (ROIC)
– Long-term capacity planning
Modern financial planning also considers lease obligations when forecasting debt ratios, liquidity, covenant compliance, and future financing needs.
Because lease accounting standards require most leases to appear on the balance sheet, leasing has become an important component of financial reporting, corporate performance analysis, and strategic planning.
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