The inclusion of leases on the balance sheet as an asset and liability has lowered firms' debt-to-asset ratios.
Generally, the impact is greater upon the smaller of the numerator or denominator. The numerator is smaller in the debt/asset ratio. By adding the same amount to both the top and bottom of the calculation, the numerator is magnified, leading to a greater number. The ratio increases.

Question

Quizplus · Accepted Answer

The statement is incorrect. The inclusion of leases on the balance sheet increases both the numerator (debt) and the denominator (assets) by the same amount, hence the debt-to-asset ratio remains unaffected.

The Inclusion of Leases on the Balance Sheet as an Asset