Operating lease

A rental arrangement that gives the company the use of an asset without owning it. Stores, aircraft, hotels and warehouses are usually held this way.

Under the current standards a lessee recognises a right-of-use asset and a matching lease liability for almost all leases, so the obligation is now visible. The income statement effect changed too: rent disappeared as a single operating cost and was replaced by depreciation on the asset plus interest on the liability, which raises reported earnings before interest and tax without any change in the business.

Where a pre-transition figure is all you have, a rough capitalisation multiplies the annual rent by somewhere between five and eight times. Rent of ₹240 crore at 5.5 times gives ₹1,320 crore of implied debt.

Any returns calculation for a retailer or an airline that ignores leases is fiction. That is the single most common error in sector analysis.