LeaseSCRE utilizes a Machine Learning Algorithm to predict credit ratings based on financial statement data. The model was trained on financial statements inputs that include and exclude certain information in order to make sure that the inputs are consistent across companies. In order to produce the most accurate credit rating estimation, it is important to utilize the correct accounting methods. Details for each Incremental Borrowing Rate formula component are provided below.

Note that while certain items in these definitions are financial in nature, companies whose primary sector is Financials are excluded from LeaseSCRE.

What should I include or exclude from revenue?

When it comes to Incremental Borrowing Rate calculations, revenue is the total amount earned from providing goods or services. This is different from income which is the total amount left after expenses and taxes are accounted for.

Revenues include: 

• Accident and health premiums earned

• Asset management fee

• Brokerage commission

• Credit card fee

• Commission and fees

• Income (loss) on equity investment (income block)

• Fees and other income

• Foreign exchange gain (loss) – income

• Gain (loss) on sale of assets – (revenue block)

• Gain (loss) on sale of investments and securities (rev)

• Gain (loss) on sale of loans – (revenue block)

• Other premiums earned

• Underwriting & investment banking fee

• Interest and dividend income corporate segment

• Interest and dividend income other than corporate segment

• Income (loss) on real estate held for investment – income, income (loss) from foreclosed properties – (rev)

• Life insurance premiums earned

• Loan servicing revenue, mortgage banking activities

• Mortgage banking

• Property management fee

• Non-insurance activities revenues

• Property & casualty premiums earned

• Trading and principal transactions

• Tenant reimbursements rental revenues

• Service charges on deposits, revenues – (collected)

• Cargo revenues, franchise revenues

• Gain (loss) on sale of loans & receivables – (revenue block) – (collected)

• Management fee, passenger revenues

• Product revenues

• Research and development revenues

• Royalty income – (rev)

• Rental revenues

• Service revenues

• Income from trading activities

• Trust income

• Deductions from sales

• Insurance and annuity revenues

• Excise taxes excluded from sales

• Other non-interest income (collected)

Revenues exclude: 

• Excise taxes included in sales (supple)

• Provision for doubtful accounts – patient service revenue

How do I estimate gross profit?

Gross profit for the Incremental Borrowing Rate formula is estimated as revenue (as defined above) less cost of goods sold. 

Costs of goods sold includes: 

• Cost of goods sold

• Total

• Finance div. operating exp.

• Insurance division operating expenses

• Interest expense (finance division)

How do I estimate EBIT?

In the Incremental Borrowing Rate calculation formula, EBIT is estimated as gross profit (defined above) less operating costs.

Operating costs include: 

• Selling general & admin expenses

• Total, depreciation & amortization, total – (is)

• R&D expenses

• Other operating expenses

How do I estimate EBITDA?

When using the LeaseSCRE Incremental Borrowing Rate estimator, EBITDA is estimated as EBIT (defined above) plus depreciation & amortization.

Depreciation & amortization includes: 

• Depreciation

• Amortization of intangibles

• Impairment of oil

• Gas & mineral properties

• Amortization of goodwill

• Amortization of intangible assets

How do I estimate interest expense?

When it comes to how Incremental Borrowing Rate is calculated, interest expense is the cost of borrowing.

Interest expense includes the following: 

• Debt issuance costs

• Interest expense

• Preferred stock dividend of subsidiary

• After tax portion of pref. stock dividend of subsidiary

• Dividend on trust pref. securities

• After tax portion dividend on trust pref. securities

How do I estimate net income?

Net income is sales less cost of goods sold (defined above) and expenses.

Net income includes the following: 

• Earnings from continuing operations

• Earnings of discontinued operations

• Extraordinary item & accounting change

• Minority interest in earnings

How do I estimate total assets?

In the Incremental Borrowing Rate formula, total assets are the value of any items that are owned.

Total assets includes the following: 

• Total current assets

• Net property

• Plant & equipment

• Long-term investments

• Goodwill

• Other intangibles

• Total, finance div. loans and leases

• LT

• Finance division other long-term assets

• Other assets

How do I estimate total long-term assets?

Long term assets are computed as total assets (defined above) less current assets.

Current assets include: 

• Total cash & st investments

• Total receivables

• Inventory

• Prepaid expenses

• Finance div. loans and leases

• ST

• Finance division other current assets

• Other current assets

• Trading asset securities

How do I estimate total debt?

This part of the incremental borrowing rate formula represents the sum of all long term debts.

Long term debt includes: 

• Short-term borrowings

• Current portion of long-term debt

• Current portion of cap. leases

• Long-term debt

• Capital leases

• Finance div. debt current

• Finance div. debt non-curr.

How do I estimate total liabilities?

Total liabilities are made up of current and noncurrent liabilities.

Total liabilities include: 

• Total current liabilities

• Long-term debt

• Capital leases

• Finance division debt non-current

• Finance division other non-current liabilities

• Other liabilities

• Trust preferred securities

How do I estimate retained earnings?

Retained earnings are equivalent to the amount left over at the end of a reporting period. 

Retained earnings include: 

• Earnings reinvested in business

• Legal reserve

• Income reinvested in the business

• Deficit accumulated during development stage

Retained earnings exclude:

• Accredited dividends

• Market securities valuation reserves

How do I estimate shareholders’ equity?

Shareholder’s equity is comprised of a company’s total net value.

Shareholders equity includes: 

• Total preferred equity

• Total common equity

• Total minority interest

How do I estimate cash flow from operations?

Cash Flow from Operations includes:

Net Income and adjustments for: 

• Depreciation and amortization

• Amortization of deferred charges

• Gain/(loss) from sale of asset

• Gain/(loss) on sale of investments

• Asset writedown & restructuring costs

• Net increase/decrease in loans orig/sold

• Provision for credit losses

• (Income) loss on equity investments

• Stock-based compensation

• Tax benefit from stock options

• Provision and write-off of bad debts

• Minority interest in earnings

• Net cash from discontinued ops.

• Other operating activities

• Total, change in net operating assets

How do I estimate dividends paid?

Dividends paid includes both common and preferred stock dividends paid.

Dividends paid excludes: 

• Payment of dividend by subsidiary

• Distributions on company-obligated Mandatorily redeemable preferred stock of subsidiary trust

• Return of capital

How do I estimate total cash flow?

Total Cash Flow represents net increase or decrease in cash or cash equivalents in the last twelve months.

Total cash flow includes the following: 

• Cash from operations

• Cash from investing

• Cash from financing

• Foreign exchange rate adjustments

• Miscellaneous cash flow adjustments

Lease accounting calculations can be complex, learn how LeaseSCRE can help today: