Calculating Net Debt
What to do with lease liabilities?
Net debt is the total debt carried by a business less cash and securities that can be turned into cash quickly (liquid assets).
Lease liabilities are a construct based on future payments. The payments are discounted at a suitable rate and the net present value appears as debt on the balance sheet.
Net debt = long and short term debt + lease liabilities - cash & cash equivalents
Net debt measures where a company would stand if it had to pay off its debt immediately (at balance date) from readily available cash and cash equivalents.
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Are you referring to US GAAP? A workaround could be to calculate and state two net debts; one with and one without lease liabilities. And make clear in the notes what was done. Lease assets should surely be left out in both cases as assets are not included in debt calculations. I agree IFRS is really confusing in this regard.
Nobody calculated net debt this way before IFRS made the changes. Nor do they under GAAP. Because it's total hogwash. And what about the corresponding Lease assets?