Module I· Lease Accounting (IFRS 16 vs. HGB)Intermediate
Question
How does IFRS 16 change reported EBITDA?
Answer
Mechanics
Under old IAS 17 operating-lease accounting and under HGB, the full lease cost is booked as rent expense in operating expenses, reducing EBITDA. Under IFRS 16 the lease is split:
- D&A on the RoU asset goes into D&A — it reduces EBIT, not EBITDA.
- Interest on the lease liability goes into interest expense — it reduces EBT, not EBITDA.
Deep diveShow more details
Consequence
EBITDA increases under IFRS 16 versus the old operating-lease treatment.
Example — IndustrialCo ($100m annual rent expense under operating-lease logic):
| IFRS 16 effect | Impact |
|---|---|
| EBITDA increase | +$100m (no rent expense in OpEx) |
| EBIT increase | +$20m (only $80m D&A instead of $100m rent expense) |
| Net-income effect | $0 ($80m D&A + $20m interest = $100m, same as before) |
*Simplified steady-state example: RoU D&A is straight-line and the interest component declines over time. The net-income effect is zero over the full lease term, not necessarily in each year.*
Valuation implication
- EV/EBITDA multiples look artificially lower under IFRS 16 because EBITDA is artificially higher.
- Trading comps must be shown consistently on either an IFRS 16 or pre-IFRS 16 basis.
Pitch tip
Pre-IFRS-16 EBITDA adjustment means subtracting the operating-lease expense back out of EBITDA. Otherwise you overstate EBITDA when comparing IFRS reporters to HGB / pre-2019 IFRS targets.