Leasing versus buying
Leasing means paying for the use of an asset for a period; buying means paying for the asset itself and owning what remains of it afterwards. The two give the same use at a different cost profile, so they are compared over the same period.
Cost of buying = Purchase price − Resale value + Financing and upkeep | Cost of leasing = Total rent paid over the same period
Why it matters
A rent line looks like an ordinary monthly cost, but it is a commitment that runs for the length of the contract. Comparing rent with ownership over one period shows which option leaves more cash in the business and which one ties it up.
Where it appears in a CFO+ model
- In the monthly fixed-cost lines of the activity, where rent appears as a recurring cost.
- In the assets section, when the same space or equipment is bought instead of rented.
- How a lease is presented in the statements depends on the accounting framework chosen for the model.
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Activities where it shows up
No figures are published: a definition and a formula only.