Operating Leases Moving onto Balance Sheets


I was curious if any of you guys had considered the implications of Operating Leases being moved onto Balance Sheets? Do we know how our friendly data provider if going to handle the change? Will Operating Leases become a part of Debt or will they be categorized separately?

Seems impossible to know what the impact of this change would be on our backtests, although in theory it is better to have this on the Balance Sheet than hidden.




I’m also very curious about this, particularly whether they’ll be classified as debt or non-debt liabilities. It could be a real game-changer. We’ll also need a code for it. Personally, I’m hoping it gets classified as debt. When I think of non-debt liabilities, I think of stuff like accounts payable, unearned revenue, and unpaid interest accrued. Leases don’t seem to fit into that category. If they don’t get classified as debt, I’d be inclined to manually add them as such into my formulae. But what do others think?

P123 Staff - have you guys heard anything as to how this will be handled?

I’d be interested to hear if there’s been any more progress with this item from 4 years ago. Its my understanding that since this accounting change came into force, the correct formula for Free Cash Flow has changed, because lease repayments need to be deducted from it.

I note that the description of FCFQ hasn’t changed from the pre-2019 definitions. There also doesn’t seem to be any line item corresponding to lease repayments in the Financing section of the Cash Flow statement.

Also do the analyst estimates for Free Cash flow include this adjustment, e.g. FCFEstCY?

FactSet classifies operating leases as long-term debt. We don’t have a separate line item for them, but they are included in LiabLT and DbtLT. The operating lease expenses are included in the expenses in the income statement under interest expenses. Because interest expenses are deducted before arriving at net income, they are taken into account when calculating cash flow.