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- 2011-7-11
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- 2014-8-2
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PRACTICAL PROBLEM - OPERATING LEASES
| I encountered an issue at work with regards to the treatment of operating leases in the valuation of a company. To determine the value of equity in the company, my view is that operating leases should be included in the liabilities (indebtedness). The reason is because operating leases is a form of off balance sheet financing and therefore should be accounted for in valuation of a company. Indebtedness is deducted from Enterprise Value to derive the value of equity (assume no surplus assets/liabilities). My colleague disagrees and advises that operating leases are non-interest bearing debt and therefore should not be included in the liabilities (indebtedness). I argue that if operating leases are not accounted for, indebtedness could be undervalued and equity overvalued. Should operating leases be included in liabilities (indebtedness)? Please advise the appropriate treatment of operating leases in deriving the valuation of a company and its equity value. Please back up your reasoning with evidence/literature (if possible). Thanks in advance. |
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发表于 2011-7-11 18:54
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