IFRS 16, effective from 1 January 2019, fundamentally changed the accounting treatment of leases by requiring lessees to recognise virtually all leases on the balance sheet as right-of-use (ROU) assets and corresponding lease liabilities, eliminating the operating/finance lease distinction for lessees. This has significant implications for business valuation and due diligence: EBITDA increases (rent is reclassified as depreciation + interest), net debt increases (lease liabilities are debt-like), and EBIT is largely unaffected. Cross-company comparisons require attention to IFRS 16 adoption dates and practical expedients applied.

‍

Example: a Swiss retail company reports EBITDA of CHF 12.0 million under IFRS 16 versus CHF 7.0 million under the previous IAS 17 — a CHF 5.0 million uplift from reclassifying CHF 5.0 million of annual rent as IFRS 16 depreciation and interest. However, the CHF 28.0 million of IFRS 16 lease liabilities recognised on the balance sheet are treated as debt in the EV bridge, reducing the equity value by CHF 28.0 million and largely offsetting the EBITDA uplift at a standard multiple.

‍

Hectelion adjusts for IFRS 16 impacts in every valuation and due diligence to ensure comparability and an accurate debt bridge.