Operating Leases

I know that the transition in accounting methods for operating leases is underway for public/private companies.

1) How should I be accounting for operating leases now in terms of EV and EBITDAR?

2) How does CapIQ handle them?

3) If the total amount of operating leases is not provided, but rather simply operating lease expense, how do you estimate operating lease totals? 8x annual expense?

Thank you.

 
Most Helpful

1) EV / EBITDA or EV including lease liabilities / EBITDAR. I personally prefer to look at the former.

2) CapIQ is annoying - if you just look at their multiples, they include lease liabilities in EV but don't adjust EBITDA for lease expense. I wish they'd leave lease liabilities out of EV.

3) Operating leases should be easy to find on the Balance Sheet. If for some reason you can't find it, I'd just do EV (not including lease liabilities) / EBITDA. If you insist on using EBITDAR multiples and can't find B/S info, then 8x is probably a fine rule of thumb.

 

Cap IQ includes operating leases as debt and therefore in enterprise value. Operating leases aren't debt though. So just make a separate tab for operating leases and subtract them out from EV because they're being included in debt when they shouldn't be.

 

Fun fact: CapIQ does include this in the TEV calc.... but instead of using the Capiq formula that’s TEV of XYZ company you should use TEV excluding leases of XYZ company. Hope that helps

 

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