IFRS 16 Impact
The effect of the IFRS 16 lease accounting standard, which requires operating leases to be capitalised on the balance sheet as right-of-use assets and lease liabilities.
Also known as: IFRS 16, Lease accounting, Right-of-use assets
One-line definition
IFRS 16 moved operating leases onto the balance sheet as liabilities — dramatically increasing reported debt and EBITDA simultaneously.
Mechanical impact
Pre-IFRS 16: lease payments are an opex → reduces EBITDA. Post-IFRS 16: lease is capitalised → creates depreciation (D&A add-back) and interest. EBITDA increases because the lease cost moves below the EBITDA line.
Deal relevance
When comparing companies or periods across the IFRS 16 adoption boundary, TS teams must ensure like-for-like treatment. IFRS 16 lease liabilities must be included in Net Debt — a common source of disputes.
Related terms
Net Debt
The gap between Enterprise Value and Equity Value in a deal — gross debt minus cash, plus a long list of debt-like items.
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortisation — the most cited profitability proxy in M&A.
D&A (Depreciation & Amortisation)
The systematic allocation of the cost of tangible (depreciation) and intangible (amortisation) long-term assets over their useful lives.