wat is operational lease

An operational lease is a contract that allows a user, called the lessee, to use an asset for a specific period of time, from a lessor, who owns the asset. It’s like renting an apartment, but for equipment, vehicles, or even real estate.

Here are some key characteristics of an operating lease:

• • The lessee does not own the asset. At the end of the lease term, the lessee returns the asset to the lessor.
  • The lease term is shorter than the useful life of the asset. This means that the lessor expects to lease the asset to multiple users over its lifetime.
  • The lessee pays rent for the use of the asset. The rent payments are typically made on a monthly or quarterly basis.
  • The lessee is not responsible for the maintenance of the asset. The lessor is responsible for maintaining the asset and keeping it in good working condition.
  • Operating leases are not treated as debt on the lessee’s balance sheet. This means that they do not affect the lessee’s debt-to-equity ratio or other financial ratios.

Operating leases are often used for assets that are expected to depreciate quickly, such as computers or cell phones. They can also be used for assets that the lessee may not want to own outright, such as office furniture or construction equipment.

Here are some of the advantages and disadvantages of operating leases:

Advantages:

• Flexibility: Operating leases provide businesses with more flexibility than owning assets. Businesses can easily upgrade to newer equipment or return the equipment if they no longer need it.
• Predictable costs: Operating leases provide businesses with predictable costs, as the rent payments are fixed for the duration of the lease.
• Off-balance sheet financing: Operating leases do not appear on the lessee’s balance sheet, which can improve the lessee’s financial ratios.

Disadvantages:

• Higher total cost: Over the long term, the total cost of an operating lease can be higher than the cost of owning the asset.
• No ownership: The lessee does not own the asset at the end of the lease term.
• Limited customization: The lessee may have limited ability to customize the asset.

I hope this helps! Let me know if you have any other questions.