Do you keep short term operating lease assets/liabilities in the NWC? Why or why not?

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Exclude. It’s a non cash item and you’re treating adjusted NWC as a proxy for cash needed to run the business. Or at least that’s what I was taught. I’ll blame my manager if it’s wrong

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The operating lease liability includes the cash payments. Agreed it doesn’t create incremental cash obligations but the lease liability on the balance sheet does capture the actual payments as well

Take them out. They are not debt or NWC

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^this

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Exclude

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Doesn’t matter as long as there is consistency. Operating lease related balances aren’t debt. You had to take them out of NWC during the 840 to 842 conversion period (just as you had to take out 840 deferred rent balances) so that you had a consistent basis of accounting over time flowing into the peg. People continue to just exclude them from NWC, but primarily out of habit and not an accounting reason.

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If I’m on a buyside and the net liability balance is climbing I’ll keep them in. If I’m on a sell side and climbing I’ll strip them out and vice versa. There’s arguments to both sides on taking out vs. keeping in.

No because for the buyer scenarios, at close the balance should be higher than the average 12 months if it’s been increasing therefore a deduction to purchase price.

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