Company Valuation Under IFRS : Interpreting and Forecasting ...

Company valuation under IFRS
6.4 Case example
When looking at a set of financials for information on leasing a number of pieces
of information may well be helpful:
• The accounting policy statement for leasing will immediately inform the
user what type of leases the company uses. The vast majority of large
corporations will use operating as well as finance leases. In addition sale and
leaseback transactions may well be used for financial structuring.
• Thelevel of finance leases can quickly be ascertained by looking at the debt
note. The leases that have been capitalised (i.e finance/capital leases) will
appear in long term and short term debt. Note that these liabilities are
principal amounts only. The detailed note for Hilton showing a time profile
split is reproduced below in Exhibits 4.22 and 4.23. The presentation
employed by Hilton is to show the gross rentals, which would include
interest, and then to reverse this out to leave the residual principal amounts.
Exhibit 4.22: Hilton note on leases (1)
Obligations under finance leases
The maturity of the Group’s obligations is as follows:
2003 2002
£m £m
Amounts payable:
– Within one year 18.4 4.4
– Within two to five years 14.9 26.6
– After more than five years 26.1 28.0
59.4 59.0
Less: finance charges allocated to future periods (5.4) (7.5)
54.0 51.5
Source: Hilton Group plc Annual Report 2003
• The annual payments on finance and operating leases go through the
cashflow statement in very different ways. For finance leases, payments are
split between interest elements (will typically go to operating cashflows
under IFRS) and principal repayments which will be disclosed under
financing cashflows. Operating leases will simply go through operating
cashflows as revenue expenditure flows.
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