What does capitalizing lease payments mean?

Capitalizing lease payments means treating the lease payments as an asset on a company's balance sheet rather than as an expense in the income statement. This is done under accounting standards like IFRS 16 and ASC 842, which require lessees to recognize a "right-of-use" asset and a corresponding lease liability. This approach can impact financial ratiOS and overall financial reporting, reflecting the long-term obligation associated with the lease.