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

Accenture PLC, future operating lease payments

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Total undiscounted future operating lease payments1 (USD $ in thousands) 3,706,874  2,817,304  2,454,523  2,164,066  2,160,400  2,118,078 
Discount rate2 –% –% –% –% –% –%
Total present value of future operating lease payments (USD $ in thousands) 3,706,874  2,817,304  2,454,523  2,164,066  2,160,400  2,118,078 

1 Source: Accenture PLC Annual Reports

2 Operating leases interest rate (unknown)

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2018 561,743  2018 561,743  561,743 
2019 505,648  2019 505,648  505,648 
2020 451,870  2020 451,870  451,870 
2021 405,222  2021 405,222  405,222 
2022 353,254  2022 353,254  353,254 
2023 and thereafter 1,429,137  2023 353,254  353,254 
2024 353,254  353,254 
2025 353,254  353,254 
2026 353,254  353,254 
2027 16,121  16,121 
Total: 3,706,874  3,706,874  3,706,874 

1 Source: Accenture PLC Annual Reports

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2017 516,622  2017 516,622  516,622 
2018 445,853  2018 445,853  445,853 
2019 375,393  2019 375,393  375,393 
2020 318,828  2020 318,828  318,828 
2021 257,949  2021 257,949  257,949 
2022 and thereafter 902,659  2022 257,949  257,949 
2023 257,949  257,949 
2024 257,949  257,949 
2025 128,812  128,812 
Total: 2,817,304  2,817,304  2,817,304 

1 Source: Accenture PLC Annual Reports

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2016 469,626  2016 469,626  469,626 
2017 410,872  2017 410,872  410,872 
2018 330,772  2018 330,772  330,772 
2019 273,404  2019 273,404  273,404 
2020 238,170  2020 238,170  238,170 
2021 and thereafter 731,679  2021 238,170  238,170 
2022 238,170  238,170 
2023 238,170  238,170 
2024 17,169  17,169 
Total: 2,454,523  2,454,523  2,454,523 

1 Source: Accenture PLC Annual Reports

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2015 482,155  2015 482,155  482,155 
2016 386,962  2016 386,962  386,962 
2017 298,719  2017 298,719  298,719 
2018 217,197  2018 217,197  217,197 
2019 170,804  2019 170,804  170,804 
2020 and thereafter 608,229  2020 170,804  170,804 
2021 170,804  170,804 
2022 170,804  170,804 
2023 95,817  95,817 
Total: 2,164,066  2,164,066  2,164,066 

1 Source: Accenture PLC Annual Reports

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2014 454,655  2014 454,655  454,655 
2015 364,701  2015 364,701  364,701 
2016 283,849  2016 283,849  283,849 
2017 219,043  2017 219,043  219,043 
2018 163,549  2018 163,549  163,549 
2019 and thereafter 674,603  2019 163,549  163,549 
2020 163,549  163,549 
2021 163,549  163,549 
2022 163,549  163,549 
2023 20,407  20,407 
Total: 2,160,400  2,160,400  2,160,400 

1 Source: Accenture PLC Annual Reports

Year Future operating lease payments (as reported)1 Year Future operating lease payments (estimated) Present value at –%
2013 443,086  2013 443,086  443,086 
2014 354,371  2014 354,371  354,371 
2015 284,459  2015 284,459  284,459 
2016 217,222  2016 217,222  217,222 
2017 169,951  2017 169,951  169,951 
2018 and thereafter 648,989  2018 169,951  169,951 
2019 169,951  169,951 
2020 169,951  169,951 
2021 139,136  139,136 
Total: 2,118,078  2,118,078  2,118,078 

1 Source: Accenture PLC Annual Reports

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Analyst Adjustments for Operating Leases

Accenture PLC, adjustments to financial data

USD $ in thousands

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Adjustment to Total Assets
Total assets (as reported) 22,689,890  20,609,004  18,266,058  17,930,452  16,867,049  16,665,415 
Add: Operating leased assets1 3,706,874  2,817,304  2,454,523  2,164,066  2,160,400  2,118,078 
Total assets (adjusted) 26,396,764  23,426,308  20,720,581  20,094,518  19,027,449  18,783,493 
Adjustment to Total Debt
Total debt (as reported) 25,070  27,230  27,435  26,733  25,600  33 
Add: Operating lease obligations2 3,706,874  2,817,304  2,454,523  2,164,066  2,160,400  2,118,078 
Total debt (adjusted) 3,731,944  2,844,534  2,481,958  2,190,799  2,186,000  2,118,111 
Adjustment to Earnings before Interest and Tax (EBIT)
EBIT3 (as reported) 4,631,577  5,619,830  4,425,108  4,315,322  4,353,329  3,919,235 
Add-back: Rental expense4 617,014  578,149  547,206  539,711  529,342  541,182 
Less: Depreciation expense, operating leased assets5 617,014  578,149  547,206  539,711  529,342  541,182 
EBIT (adjusted) 4,631,577  5,619,830  4,425,108  4,315,322  4,353,329  3,919,235 
Adjustment to Interest Expense
Interest expense (as reported) 15,545  16,258  14,578  17,621  14,035  15,061 
Add: Interest expense, operating lease obligations6
Interest expense (adjusted) 15,545  16,258  14,578  17,621  14,035  15,061 

1, 2 Equal to total present value of future operating lease payments. See Details »

3 See Details »

4 Source: Accenture PLC Annual Reports

5 See Details »

6 See Details »

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Adjusted Ratios for Operating Leases (Summary)

Accenture PLC, adjusted ratios

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Total Asset Turnover1
Reported total asset turnover 1.54 1.60 1.70 1.67 1.69 1.67
Adjusted total asset turnover 1.32 1.40 1.50 1.49 1.50 1.48
Debt to Equity2
Reported debt to equity 0.00 0.00 0.00 0.00 0.01 0.00
Adjusted debt to equity 0.42 0.38 0.40 0.38 0.44 0.51
Return on Assets3 (ROA)
Reported ROA 15.18% 19.95% 16.72% 16.41% 19.46% 15.32%
Adjusted ROA 13.05% 17.55% 14.74% 14.64% 17.25% 13.59%
Interest Coverage4
Reported interest coverage 297.95 345.67 303.55 244.90 310.18 260.22
Adjusted interest coverage 297.95 345.67 303.55 244.90 310.18 260.22
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Accenture PLC'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. Accenture PLC's adjusted debt-to-equity improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Accenture PLC'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. Accenture PLC's adjusted interest coverage improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Revenues before reimbursements (Net revenues) (USD $ in thousands) 34,850,182  32,882,723  31,047,931  30,002,394  28,562,810  27,862,330 
Total assets (USD $ in thousands) 22,689,890  20,609,004  18,266,058  17,930,452  16,867,049  16,665,415 
Total asset turnover1 1.54 1.60 1.70 1.67 1.69 1.67
Adjusted for Operating Leases
Revenues before reimbursements (Net revenues) (USD $ in thousands) 34,850,182  32,882,723  31,047,931  30,002,394  28,562,810  27,862,330 
Adjusted total assets (USD $ in thousands) 26,396,764  23,426,308  20,720,581  20,094,518  19,027,449  18,783,493 
Adjusted total asset turnover2 1.32 1.40 1.50 1.49 1.50 1.48

2017 Calculations

1 Total asset turnover = Revenues before reimbursements (Net revenues) ÷ Total assets
= 34,850,182 ÷ 22,689,890 = 1.54

2 Adjusted total asset turnover = Revenues before reimbursements (Net revenues) ÷ Adjusted total assets
= 34,850,182 ÷ 26,396,764 = 1.32

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Accenture PLC's adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Debt to Equity

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Total debt (USD $ in thousands) 25,070  27,230  27,435  26,733  25,600  33 
Total Accenture plc shareholders' equity (USD $ in thousands) 8,949,477  7,555,262  6,133,725  5,732,035  4,960,186  4,145,833 
Debt to equity1 0.00 0.00 0.00 0.00 0.01 0.00
Adjusted for Operating Leases
Adjusted total debt (USD $ in thousands) 3,731,944  2,844,534  2,481,958  2,190,799  2,186,000  2,118,111 
Total Accenture plc shareholders' equity (USD $ in thousands) 8,949,477  7,555,262  6,133,725  5,732,035  4,960,186  4,145,833 
Adjusted debt to equity2 0.42 0.38 0.40 0.38 0.44 0.51

2017 Calculations

1 Debt to equity = Total debt ÷ Total Accenture plc shareholders' equity
= 25,070 ÷ 8,949,477 = 0.00

2 Adjusted debt to equity = Adjusted total debt ÷ Total Accenture plc shareholders' equity
= 3,731,944 ÷ 8,949,477 = 0.42

Ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders' equity. Accenture PLC's adjusted debt-to-equity improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Net income attributable to Accenture plc (USD $ in thousands) 3,445,149  4,111,892  3,053,581  2,941,498  3,281,878  2,553,510 
Total assets (USD $ in thousands) 22,689,890  20,609,004  18,266,058  17,930,452  16,867,049  16,665,415 
ROA1 15.18% 19.95% 16.72% 16.41% 19.46% 15.32%
Adjusted for Operating Leases
Net income attributable to Accenture plc (USD $ in thousands) 3,445,149  4,111,892  3,053,581  2,941,498  3,281,878  2,553,510 
Adjusted total assets (USD $ in thousands) 26,396,764  23,426,308  20,720,581  20,094,518  19,027,449  18,783,493 
Adjusted ROA2 13.05% 17.55% 14.74% 14.64% 17.25% 13.59%

2017 Calculations

1 ROA = 100 × Net income attributable to Accenture plc ÷ Total assets
= 100 × 3,445,149 ÷ 22,689,890 = 15.18%

2 Adjusted ROA = 100 × Net income attributable to Accenture plc ÷ Adjusted total assets
= 100 × 3,445,149 ÷ 26,396,764 = 13.05%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Accenture PLC's adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Interest Coverage

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Earnings before interest and tax1 (EBIT) (USD $ in thousands) 4,631,577  5,619,830  4,425,108  4,315,322  4,353,329  3,919,235 
Interest expense (USD $ in thousands) 15,545  16,258  14,578  17,621  14,035  15,061 
Interest coverage2 297.95 345.67 303.55 244.90 310.18 260.22
Adjusted for Operating Leases
Adjusted EBIT (USD $ in thousands) 4,631,577  5,619,830  4,425,108  4,315,322  4,353,329  3,919,235 
Adjusted interest expense (USD $ in thousands) 15,545  16,258  14,578  17,621  14,035  15,061 
Adjusted interest coverage3 297.95 345.67 303.55 244.90 310.18 260.22

1 See Details »

2017 Calculations

2 Interest coverage = EBIT ÷ Interest expense
= 4,631,577 ÷ 15,545 = 297.95

3 Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= 4,631,577 ÷ 15,545 = 297.95

Ratio Description The company
Adjusted interest coverage ratio A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. Accenture PLC's adjusted interest coverage ratio improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Estimation of Depreciation Expense, Operating Leased Assets

USD $ in thousands

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Rental expense1 617,014  578,149  547,206  539,711  529,342  541,182 
Less: Estimated interest expense, operating lease obligations2
Estimated depreciation expense, operating leased assets 617,014  578,149  547,206  539,711  529,342  541,182 

1 Source: Accenture PLC, Annual Reports

2 See Details »

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Estimation of Interest Expense, Operating Lease Obligations

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Operating leased assets, at beginning of year1 (USD $ in thousands) 4,323,888  3,395,453  3,001,729  2,703,777  2,689,742  2,659,260 
Discount rate2 –% –% –% –% –% –%
Estimated interest expense, operating lease obligations3 (USD $ in thousands)

1 See Details »

2 Operating leases interest rate (unknown)

2017 Calculations

3 Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= 4,323,888 × –% = –

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Present Value of Operating Lease Payments, at Beginning of Year

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Total present value of future operating lease payments1 (USD $ in thousands) 3,706,874  2,817,304  2,454,523  2,164,066  2,160,400  2,118,078 
Rental expense2 (USD $ in thousands) 617,014  578,149  547,206  539,711  529,342  541,182 
Discount rate3 –% –% –% –% –% –%
Total present value of operating lease payments, at beginning of year4 (USD $ in thousands) 4,323,888  3,395,453  3,001,729  2,703,777  2,689,742  2,659,260 

1 Equal to total present value of future operating lease payments. See Details »

2 Source: Accenture PLC, Annual Reports

3 Operating leases interest rate (unknown)

2017 Calculations

4 Total present value of operating lease payments, at beginning of year = (Total present value of future operating lease payments + Rental expense) ÷ (1 + Discount rate)
= (3,706,874 + 617,014) ÷ (1 + –%) = 4,323,888

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