Normally on places like YahooFinance, TIKR etc. they include the Balance Sheet item “Capital Leases” as debt. Because from an IFRS perspective it is debt.
I’m not 100% sure, but I think from a sharia perspective this is not debt.
What does the Zoya calculation treat capital leases as?
The Total Debt figure in Zoya represents all interest-bearing obligations of the company, regardless of when these obligations are due. It consists of the following:
We revisited this topic with our shariah advisors last year and they agreed that it should continue to be included.
Did you speak to them them specifically about capital leases? And is there any more detail if so?
Yes. I’ll see if I can dig up the minutes from the meeting to get more details on the rationale.
To summarize their comments, capital lease obligations should be included because they are not just a rental but have a clause to allow ownership transfer at the end, making it more like interest-based financing.
Understand.
I asked some accountant friends and just to give an example.
If I rented an office for 5 years, with no right to purchase, then that would be a capital lease.
Under sharia, that’s not debt.
But maybe there are occasions where there is interest involved and so the scholars are being safe about it.
What you described is a standard operating lease, no?
My understanding is that under IFRS, all operating leases longer than 12 months are capital leases.
The link you shared references IFAC rules.
I think stocks report under IFRS not IFAC.
Actually… maybe I’m wrong. US GAAP does seem to have operating leases. IFRS doesn’t.
I will probably have to look more into it as I’m pretty sure not all capital leases involve riba.