petec Posted May 5, 2020 Share Posted May 5, 2020 What do people think about the capitalisation of leases? On the one hand, leases represent a commitment to pay, and so can be looked at as debt and capital employed. On the other, a) leases don't represent a capital outlay, so they're not capital employed, and if you include them for ROIC you'll underestimate potential cash flows. b) there are plenty of commitments to pay that don't get capitalised as debt. For example, a company has to pay its employees (contractually for their notice period, and logically for the life of the company) but these costs aren't capitalised. Do you include lease liabilities in EV when valuing companies or in invested capital when calculating ROIC? I tend to think they should not be capitalised, but instead thought of as increasing operating leverage. Link to comment Share on other sites More sharing options...
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!Register a new account
Already have an account? Sign in here.Sign In Now