International Financial Statement Analysis

CHAPTER 13

LONG-TERM LIABILITIES AND LEASES

Elizabeth A. Gordon Temple University Philadelphia, Pennsylvania

 

Elaine Henry, CFA University of Miami Coral Gables, Florida

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• Compute the effects of debt issuance and amortization of bond discounts and premiums on financial statements and ratios.

• Explain the role of debt covenants in protecting creditors by restricting a company’s ability to invest, pay dividends, or make other operating and strategic decisions.

• Describe the presentation of, and disclosures relating to, financing liabilities.

• Determine the effects of changing interest rates on the market value of debt and on financial statements and ratios.

• Describe two types of debt with equity features (convertible debt and debt with warrants) and calculate the effect of issuance of such instruments on a company’s debt ratios.

• Discuss the motivations for leasing assets instead of purchasing them and the incentives for reporting the leases as operating leases rather than finance leases.

• Determine the effects of finance and operating leases on the financial statements and ratios of the lessees and lessors.

• Distinguish between a sales-type lease and a direct financing lease, and determine the effects on the financial statements and ratios of the lessors.

• Describe the types and economic consequences of off-balance-sheet financing, and determine how take-or-pay contracts, throughput arrangements, ...