The morning exam #57 asks about debt to total assets ratio for op lease.
Why do you add the present value of operating leases to both total debt and total assets??
i thought operating leases don’t impact balance sheet at all… I guess except for rent payment liabilty?
help please!
Because those are future commitments.
operating leases aren’t *reported* on the balance sheet, so we need to add the off-balance sheet items in, which are both an asset and a liability. if it were a finance lease then we wouldn’t have the adjustments to make.
or I could be completely wrong…? this is just my thinking it through
This is called adjustment,
Operating lease need to be adjusted (add its PV to the balance sheet: asset, liability) to reflect accurately how it affect the ratios. So we treat operating lease as it was financial lease.
my english is really bad 
I think you do it so you can compare companies that use different lease types. Don’t forget that it’s treated like an annuity due!