Final answer:
A new operating lease affects a company's leverage by increasing both assets and liabilities on the balance sheet without adding to equity. This results in a higher leverage ratio, as both the debt-to-equity and debt-to-total assets ratios will increase. However, financial analysts may adjust for operating leases differently in their analyses.
Step-by-step explanation:
When a company enters into a new operating lease, it commits to regular lease payments for the use of an asset without owning it. According to accounting standards, operating leases are to be reported on the company's balance sheet as both an asset and a liability, reflecting the right to use the asset and the obligation to make lease payments, respectively. This reporting increases a company's assets and liabilities without adding any equity.
Due to the increase in liabilities with no corresponding increase in equity, an operating lease can increase a company's leverage. Leverage, often measured as the ratio of a company's total liabilities to its equity, would rise as the lease liability is added to the balance sheet. In terms of financial ratios, both the debt-to-equity ratio and debt-to-total assets ratio would show an increase in leverage.
However, many financial analysts and investors adjust for operating leases in their analysis, recognizing that these are not the same as traditional debt. Consequently, the real impact of an operating lease on a company's perceived financial leverage may vary depending on the viewer's perspective.