February 8, 2023, 1:33pm
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?
February 8, 2023, 1:43pm
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:
Short-term debt including current portion of long-term debt
Capital lease obligations
We revisited this topic with our shariah advisors last year and they agreed that it should continue to be included.
February 8, 2023, 2:20pm
Did you speak to them them specifically about capital leases? And is there any more detail if so?
February 8, 2023, 2:22pm
Yes. I’ll see if I can dig up the minutes from the meeting to get more details on the rationale.
February 9, 2023, 12:39pm
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.
February 9, 2023, 1:38pm
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.
February 9, 2023, 1:43pm
What you described is a standard operating lease, no?
February 9, 2023, 1:58pm
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.
February 9, 2023, 2:19pm
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.