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leasing of non current(fixed)assets-effect on ratios

What is the effect on the financial statement ratios if the company decides to lease the noncurrent assets needed to expand the business?

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Non current assets are fixed assets of the Company. Namely,Plant and machinery, land and building, equipment etc., used to produce the products of manufacture. Utilization of fixed assets determine the number of production units of the Company for the particular financial year.

In the question given, if the Company decides to utilize the non current assets needed to expand the business operations of the Company, what is the impact on the financial ratios.


Take an example, if the non current assets amounting to $ 10000 is going to be utilized for the purpose of expansion of undertaking which will result in additional production and sales of 10000 units in the year.Sales per unit is $ 10.

Fixed assets turnover ratio= Net Sales/Fixed assets.Fixed assets Turnover Ratio determines how efficiently the the non current assets are utilized to generate the sales, i.e., how much each rupee invested in the plant and equipment and other fixed assets has yielded the sales.If this ...

Solution Summary

Meaning of non -current assets(fixed assets), impact of leasing the fixed assets instead of using the same for own production on financial ratios.