Lessees no longer make a distinction between finance leases and operating leases.

All material leases will be treated as finance leases. The lessees will now recognize interest cost and depreciation of the leased asset, rather than operating lease expenses.

  • EBITDA will be higher, as rental expenses are transferred to depreciation and interest expenses.
  • Higher invested capital leads to lower Return on Invested Capital (ROIC)
  • Increase in lease liabilities leads to higher net debt.

Main Impact on DCF

Difficulties in DCF valuations under IFRS 16

The DCF valuations would become more challenging under IFRS 16. Some simple assumptions that are used in a DCF model, might not be appropriate anymore, mainly due to the treatment of lease liabilities.