I am having a little trouble with the intuition for the current ratio of a capital lease vs. operating lease in both the early and later years of an asset’s life. Any help is appreciated.
Current liabilities will always be higher under capital lease (current portion of long term liability). So current ratio will always be lower under capital lease…
Is this the easy thing I am missing - a leased asset is a non-current asset so the CA is unchanged, too?
Capital lease raises both asset and liab by same amount. while it raises only non current portion on asset side, thr is an increase in both long term as well as current liab(CY portion). hence CR declines