Firms Who Fear Their Capital Structure Indicates Too High a Risk

Firms who fear their capital structure indicates too high a risk level to get an advantageous cost of funding can use financial leases to hide their indebtedness.This way they replace debt they would use to acquire a resource (reported on the balance sheet on both sides,and in the income statement through depreciation and interest expense)by paying a monthly or yearly rental fee for the resource they 'leased' with an impact only on the income statement (and,incidentally,reimbursing as an 'expense' the equivalent of the principal of the debt they would have otherwise had to take on).