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Analysis of Operating Leases
Difficulty: Advanced
An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.
- Present Value of Future Operating Lease Payments
- Analyst Adjustments for Operating Leases
- Adjusted Ratios for Operating Leases (Summary)
- Adjusted Total Asset Turnover
- Adjusted Debt to Equity
- Adjusted Return on Assets (ROA)
- Adjusted Interest Coverage
- Estimation of Depreciation Expense, Operating Leased Assets
- Estimation of Interest Expense, Operating Lease Obligations
- Present Value of Operating Lease Payments, at Beginning of Year
Present Value of Future Operating Lease Payments
3M Co., future operating lease payments
1 Source: 3M Co. Annual Reports
2 Internal rate of return on capital leases
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2018 | |
2018 | |
|
| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
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| 2023 and thereafter | |
2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| Total: | |
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1 Source: 3M Co. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2017 | |
2017 | |
|
| 2018 | |
2018 | |
|
| 2019 | |
2019 | |
|
| 2020 | |
2020 | |
|
| 2021 | |
2021 | |
|
| 2022 and thereafter | |
2022 | |
|
| 2023 | |
|
||
| 2024 | |
|
||
| 2025 | |
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| Total: | |
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|
1 Source: 3M Co. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2016 | |
2016 | |
|
| 2017 | |
2017 | |
|
| 2018 | |
2018 | |
|
| 2019 | |
2019 | |
|
| 2020 | |
2020 | |
|
| 2021 and thereafter | |
2021 | |
|
| 2022 | |
|
||
| 2023 | |
|
||
| 2024 | |
|
||
| Total: | |
|
|
1 Source: 3M Co. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2015 | |
2015 | |
|
| 2016 | |
2016 | |
|
| 2017 | |
2017 | |
|
| 2018 | |
2018 | |
|
| 2019 | |
2019 | |
|
| 2020 and thereafter | |
2020 | |
|
| 2021 | |
|
||
| 2022 | |
|
||
| 2023 | |
|
||
| Total: | |
|
|
1 Source: 3M Co. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2014 | |
2014 | |
|
| 2015 | |
2015 | |
|
| 2016 | |
2016 | |
|
| 2017 | |
2017 | |
|
| 2018 | |
2018 | |
|
| 2019 and thereafter | |
2019 | |
|
| 2020 | |
|
||
| 2021 | |
|
||
| 2022 | |
|
||
| Total: | |
|
|
1 Source: 3M Co. Annual Reports
Analyst Adjustments for Operating Leases
3M Co., adjustments to financial data
USD $ in millions
1, 2 Equal to total present value of future operating lease payments. See Details »
4 Source: 3M Co. Annual Reports
Adjusted Ratios for Operating Leases (Summary)
3M Co., adjusted ratios
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | 3M Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders' equity. | 3M Co.'s adjusted debt-to-equity deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | 3M Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted interest coverage | A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. | 3M Co.'s adjusted interest coverage deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
2017 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | 3M Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Debt to Equity
2017 Calculations
1 Debt to equity = Total debt ÷ Total 3M Company shareholders' equity
= ÷ =
2 Adjusted debt to equity = Adjusted total debt ÷ Total 3M Company shareholders' equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders' equity. | 3M Co.'s adjusted debt-to-equity deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
2017 Calculations
1 ROA = 100 × Net income attributable to 3M ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Net income attributable to 3M ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | 3M Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Interest Coverage
2017 Calculations
2 Interest coverage = EBIT ÷ Interest expense
= ÷ =
3 Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted interest coverage ratio | A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. | 3M Co.'s adjusted interest coverage ratio deteriorated from 2015 to 2016 and from 2016 to 2017. |
Estimation of Depreciation Expense, Operating Leased Assets
USD $ in millions
1 Source: 3M Co., Annual Reports
Estimation of Interest Expense, Operating Lease Obligations
2 Internal rate of return on capital leases
2017 Calculations
3 Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= × =
Present Value of Operating Lease Payments, at Beginning of Year
1 Equal to total present value of future operating lease payments. See Details »
2 Source: 3M Co., Annual Reports
3 Internal rate of return on capital leases
2017 Calculations
4 Total present value of operating lease payments, at beginning of year = (Total present value of future operating lease payments + Rental expense under operating leases) ÷ (1 + Discount rate)
= ( + ) ÷ (1 + %) =
