All of them have high leases i.e., rental payment obligations!
For instance, movie exhibition companies (e.g., AMC Theatres in the US and PVR INOX in India) do not own the space in which they run their business within the shopping malls. They pay rent for using that space over a contracted period.
Until 2019, these rent payments were expensed.
Then in 2019, accountants said that if companies are obligated to make such payments over a period of time, such payments should be treated as debt — very similar to a bank loan, which is an obligation to pay interest and principal over a period.
Because of this accounting change, companies in these industries optically look more leveraged.
So how to interpret the financials of such companies from an investor lens?
And related — how do you value a business with high lease obligation?
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In this 15 min video, I explain lease obligations in detail, its impact and how to interpret financials of such a business — with an example.
Should be helpful to both students and investors!
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