The split
- Operating-lease principal: inside OCF, already deducted. Standard FCF captures it.
- Finance-lease principal: inside financing. Standard FCF does not capture it.
- Interest portion of either: inside OCF, already in net income.
The adjustment
For lease-heavy filers, subtract finance-lease principal from Standard FCF to get an all-in cash-after-leases figure. Disclose the adjustment. Damodaran addresses the lease-as-debt question directly[Damodaran].
Material sectors
- Retailers (store leases).
- Airlines (aircraft leases, often finance-classified).
- Restaurants (location leases).
- Logistics and last-mile (distribution-centre leases).
Why operating-lease principal is in OCF
The single-model lessee accounting under ASC 842 routes the operating-lease payment through the income statement as a single "lease expense" (cost of revenue or operating expense). The cash flow statement's indirect-method reconciliation adjusts for the ROU-asset amortization and lease-liability change within operating activities, so the cash already net of operating-lease principal.