Notes 8

Notes 8 - Companies try to avoid these Relatively easy to...

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Leases Lease: o Written document that gives temporary control of property to lessee for series of payments to lessor o Some leases are more like long-term purchases Should show up in capital base: On the B/S as long-term debt, account for depreciation ROA ratio, among others, looks worse o Why should analysts care? Effectively debt off of the B/S 2 methods of accounting for long-term leases: Operating (uncapitalized) lease Capital lease 93% of companies have some type of leases o Criteria for being a capital lease:
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Unformatted text preview: Companies try to avoid these Relatively easy to do As analyst we must assume that all operating leases should be capital leases o Ex. Best Buy: Convert operating leases to capital leases Add up years 1 through X Payment x discount factor = PV Sum up PVs and put in B/S as assets Lease balance x .09 = interest Payment interest = lease obligation Previous year lease balance lease obligation = current year lease balance...
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Notes 8 - Companies try to avoid these Relatively easy to...

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