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Question:

For a lessee, reporting a lease as an operating lease, rather than as a finance (capital) lease, will reduce the reported:

A debt-to-equity ratio.
Explaination

Debt is unaffected by the use of operating leases, while debt and assets both increase by the same amount with the use of finance leases, leaving equity unchanged. The debt to equity ratio is lower using operating leases. Interest expense is unaffected by the use of operating leases, while interest expense increases with the use of finance leases. Interest coverage is generally higher when operating leases are used. A company using operating leases generally has a higher return on assets because of the lower reported asset base.