Lease obligations are included in certain leverage ratios because leases:
A)Require the payment of interest
B)Represent long-term fixed obligations
C)Must be financed through a bank
D)Are a measure of efficiency, just like debt

Question

Quizplus · Accepted Answer

Leases represent long-term fixed obligations, similar to debt. As such, they are included in certain leverage ratios which measure a company's ability to meet its long-term obligations. Unlike debt, however, lease payments do not require the payment of interest and do not necessarily need to be financed through a bank. Leases are not a measure of efficiency, so option D is incorrect.

Lease Obligations Are Included in Certain Leverage Ratios Because Leases