Transition to IFRS 16 Leases and its Impact on Key Financial Ratios for Construction Companies in Finland
Ellimäki, Pia (2016)
Ellimäki, Pia
Haaga-Helia ammattikorkeakoulu
2016
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2016091414283
https://urn.fi/URN:NBN:fi:amk-2016091414283
Tiivistelmä
Leasing has gained popularity as a financing alternative among companies of all sizes. Until now, accounting for leases under International Financial Reporting Standards has divided the leases into two categories: operating and finance leases. Only the latter are recorded as liabilities on the balance sheets of lessees. This has brought about discussion on the une-qual treatment of lease commitments. The accounting standard IFRS 16 Leases was de-veloped to solve this issue.
The objective of this thesis was to investigate how the implementation of IFRS 16 Leases will affect the financial statements and financial ratios of Finnish construction companies. It is a current topic - the standard was released in the beginning of 2016 and transition will take place in 2019. The study focused on three of the largest Finnish construction compa-nies: Lemminkäinen Corporation, YIT Corporation and SRV Group Plc. The main data was derived from the audited financial statements of the entities. First, the leasing activities of each corporation were analyzed and later the financial statements were restated to include operating leases on the balance sheets. This was expected to have a significant impact on the financial ratios chosen for this study, which were gearing ratio, current ratio and EBITDA.
As a result of the restatement of financial statements, the gearing ratios and current ratios worsened while the EBITDA improved, as was expected. There were differences between the three companies, resulting in most part from their varying amounts of operating and finance leases and the total amount of financial liabilities. Predictably, the company with the highest amount of off-balance sheet lease commitments presented the biggest variations in all three financial ratios. It should be noted that the study utilized many assumptions and therefore, the results are only indicative and should be interpreted as such. It would be pos-sible to achieve more accurate results if more information was available. The work could be continued upon gaining access to the lease contracts or other internal leasing related infor-mation of the companies.
The objective of this thesis was to investigate how the implementation of IFRS 16 Leases will affect the financial statements and financial ratios of Finnish construction companies. It is a current topic - the standard was released in the beginning of 2016 and transition will take place in 2019. The study focused on three of the largest Finnish construction compa-nies: Lemminkäinen Corporation, YIT Corporation and SRV Group Plc. The main data was derived from the audited financial statements of the entities. First, the leasing activities of each corporation were analyzed and later the financial statements were restated to include operating leases on the balance sheets. This was expected to have a significant impact on the financial ratios chosen for this study, which were gearing ratio, current ratio and EBITDA.
As a result of the restatement of financial statements, the gearing ratios and current ratios worsened while the EBITDA improved, as was expected. There were differences between the three companies, resulting in most part from their varying amounts of operating and finance leases and the total amount of financial liabilities. Predictably, the company with the highest amount of off-balance sheet lease commitments presented the biggest variations in all three financial ratios. It should be noted that the study utilized many assumptions and therefore, the results are only indicative and should be interpreted as such. It would be pos-sible to achieve more accurate results if more information was available. The work could be continued upon gaining access to the lease contracts or other internal leasing related infor-mation of the companies.