Leases in LBO Modeling
Hi guys,
I have a quick quesiton on how to deal best with leases in an LBO model. I totally undertstand that under IFRS 16 everything is capitalised / on the balance sheet and flows via D&A and interest into the IS. My thinking now is that if you move to the Cashflow statement you add the D&A incl. the lease portion again. But isnt it the case that you still have a normal cash outflow related to lease payments and and this capitalisation is just an accounting way to present it. Therefore shouldnt you represent a cash lease payment as cash outflow in the CFS? How do you deal with leases in LBOs?
Many thanks in advance!
IFRS16 does not have an impact on CF as it is an accounting treatment, as you suggested.
If your EBITDA incl. IFRS16, then you would normally subtract the IFRS16 amount if you calculate FCF (based on EBITDA - Capex - Change in NWC - Tax).
If your EBITDA already excl. IFRS16, then no need to adjust FCF.
If you start from NI to FCF, you will add-back the whole D&A amount excl. the D&A amount related to the leases.
Hope it helps
hey! Thank you that helps a lot! Just one one follow-up - What exactly do you subtract if the EBITDA is incl. IFRS16. Do you subtract the D&A portion + the interest portion as cash outflow in the CFS?
No then it’s already subtracted as an opex within EBITDA. So you show nothing in CFS as it’s already accounted for in P&L
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