Sometimes it is argued against leasing that it has the disadvantage of reducing EBITDA.
This is accountingly correct under HGB – lease payments reduce EBITDA as other operating expenses. This point should be kept in mind by those responsible for financing when financial ratios need to be managed tightly.
Leasing offers excellent advantages – first and foremost the so-called off-balance-sheet effect, whereby the financing does not appear as a liability on the balance sheet. This results in a shorter balance sheet and – much more importantly – a higher equity ratio!
Likewise, leasing can have a wonderful impact on the debt-to-equity ratio.
However, if protecting EBITDA is the priority in a specific case, there are two options:
🔹 Option 1:
Adjusting the impact of finance leases, e.g. increasing EBITDA by lease payments in the loan agreement, potentially in management incentivization and wherever else it plays a role. This can usually be agreed upon with banks, as it also makes a great deal of sense from a banking perspective to exclude finance leases as a financing instrument from the EBITDA metric. In practice, this may often not be implementable in time in a given situation.
🔹 Option 2:
Quite simply: choose hire purchase instead of leasing. This is straightforward, equally feasible with leasing partners, and leaves EBITDA undiminished.
Under HGB, hire purchase is essentially treated like a loan. The financed asset is capitalized on your balance sheet, and the financing impacts – through interest as well as depreciation – fall below EBITDA. Your operating result remains untouched and the covenant metrics unchanged. Issue resolved, without having to enter into negotiations with banks.
What matters is not which product is abstractly better. What matters is which tool best meets your specific requirements!
👉 Do you currently have a larger investment project coming up?
👉 Would you like to strategically tap into the leasing sector as an alternative source of financing to diversify and stabilize your funding?
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Because there are a few more very positive effects I would love to introduce you to!
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Sometimes it is argued against leasing that it has the disadvantage of reducing EBITDA.
