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Spike in 2019Q1 Leverage Ratios: The Impact of Operating Leases Accessible Data
Figure 1: Leverage Ratio (Debt/Assets)
Figure 1 is a line graph that plots the quarterly leverage ratios (debt/assets) for non-financial firms over time. The X-axis displays calendar quarters from 1990Q1 to 2019Q1. The Y-axis displays the leverage ratios ranging from 0.10 to 0.40 in increments of 0.05. The solid red line displays the median leverage ratio across non-financial firms for each quarter. The dashed blue line displays the aggregate (asset-weighted average) leverage ratio for each quarter. In both lines there is a sharp increase in leverage ratios for 2019Q1 from 2018Q4. Calculations based on: S&P Compustat Fundamentals Quarterly (WRDS).
Source: Standard & Poor's Compustat.
Figure 2: Adjusting the Leverage Ratio for 2019:Q1
Figure 2 is a line graph that plots the quarterly leverage ratios (debt/assets) for non-financial firms over time. Figure 2 is identical to Figure 1 from 1990Q1 to 2018Q4. In 2019Q1, both the actual leverage ratios and adjusted leverage ratios are displayed. The X-axis displays calendar quarters from 1990Q1 to 2019Q1. The Y-axis displays the leverage ratios ranging from 0.10 to 0.40 in increments of 0.05. The solid red line displays the median leverage ratio across non-financial firms for each quarter. The dashed blue line displays the aggregate (asset-weighted average) leverage ratio for each quarter. In both lines there is a sharp increase in actual leverage ratios for 2019Q1 from 2018Q4, displayed by dotted lines. These are contrasted against adjusted versions of the leverage ratio that removes the impact of operating lease liabilities, displayed by solid lines for 2019Q1. The adjusted leverage ratios are much lower than the actual leverage ratios and are in line with historical leverage ratios, showing just a slight increase from 2018Q4. Calculations based on: S&P Compustat Fundamentals Quarterly (WRDS).
Source: Standard & Poor's Compustat.
Figure A.1: Comparing MRC-based and XBRL-based Operating Lease Liability Measures
Figure A.1 is a scatter plot between the MRC-based and XBRL-based measures of operating lease liabilities across all non-financial firms in 2019Q1, normalized by firm assets in 2018Q4. The X-axis displays the XBRL-based measure for operating lease liability as obtained directly from the firm’s balance sheet in 2019Q1 divided by the firm’s assets in 2018Q4 and ranges from 0 to 1. The Y-axis displays the MRC-based measure for operating lease liability as obtained from the footnotes of the firm’s annual report divided by the firm’s assets in 2018Q4 and ranges from 0 to 1. Generally, there is a positive correlation between the two operating lease liability measures, as most of the scatter points fall within a band of a dashed 45 degree line. Three solid blue markers in the shape of a diamond, square, and triangle denote the business and personal services, oil and metal mining, and utilities industries respectively. These three industries have both lower XBRL-based and MRC-based measures of operating lease liabilities. In contrast, three solid red markets in the shape of a triangle, square, and diamond denote the retail, legal and social services, and airlines and air transport industries, depicting three industries that have both higher XBRL-based and MRC-based measures of operating lease liabilities. Calculations are based on: S&P Compustat Fundamentals Annual (WRDS) and Securities Exchange Commission.