Companies have been on a borrowing binge, but you wouldn’t always know the full scale of their liabilities by looking at the balance sheet. This makes it hard for investors to compare businesses that fund their activities in different ways. Happily though, that’s about to change.
How come? The answer is buried in the notes to financial statements (you know, the ones you don’t bother reading). It’s here that companies have parked about $3 trillion in operating lease obligations, according to Bloomberg data. For non-financial companies, those obligations equate to more than one quarter of their long-term (on-balance sheet) debt.
Operating leases are actually pretty similar to debt. They represent money companies will be obliged to cough up in future to rent things like planes, ships and retail floor space. But right now you won’t find them on the balance sheet.
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