BYD to start finance and operating leasing

Chinese auto and battery maker BYD Co Ltd said on Tuesday it plans to start financial and operating leasing business with partners, with a size of business no more than 9 billion yuan ($1.48 billion).

The plan was released in a statement issued by the company's board of directors.

The statement said as the external financing has become increasingly difficult, the move will help ease the company's operational capital pressure and cater to the medium- to long-term capital need.

Financial leasing and operating leasing are two major ways of accounting for leases. In an operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor. Since the lessee does not assume the risk of ownership, the lease expense is treated as an operating expense in the income statement and the lease does not affect the balance sheet.

In a capital lease, the lessee assumes some of the risks of ownership and enjoys some of the benefits. Consequently, the lease, when signed, is recognized both as an asset and as a liability (for the lease payments) on the balance sheet. In general, capital leases recognize expenses sooner than equivalent operating leases.