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In the world of fundamental analysis, “Total Debt” is often a bit of a moving target

Published April 5, 2026

Should you include lease liabilities?

For a standard Debt-to-Equity (D/E) calculation in 2026, the short answer is yes—you should generally include lease liabilities.

Since the implementation of accounting standards IFRS 16 (and ASC 842 in the U.S.), almost all leases are now recognized on the balance sheet. Because these represent a legal obligation to make future cash payments, most analysts treat them as a form of debt.

What is Included in “Total Debt”?

To calculate a robust D/E ratio, you aggregate all interest-bearing obligations and contractual payment liabilities. This typically includes:

  • Short-Term Debt: Bank overdrafts, commercial paper, and notes payable due within one year.
  • Current Portion of Long-Term Debt: The amount of principal on long-term loans that must be paid in the next 12 months.
  • Long-Term Debt: Bonds issued, term loans, and mortgages.
  • Lease Liabilities: Both the current and non-current portions of your lease obligations.

The Formula

The comprehensive formula for the ratio looks like this:

$$Debt-to-Equity = \frac{\text{Short-Term Debt} + \text{Long-Term Debt} + \text{Lease Liabilities}}{\text{Total Shareholders’ Equity}}$$

Why Including Leases Matters

Including lease liabilities can drastically change the profile of a company, especially in sectors that rely heavily on physical footprints.

  • Retail & Restaurants: Companies like Loblaw or Canadian Tire have massive lease liabilities for their storefronts. If you exclude these, their leverage looks artificially low.
  • Airlines: Most planes are leased. Excluding these liabilities would ignore the primary financial risk of the business.
  • The “Debt vs. Liabilities” Distinction: Be careful not to use Total Liabilities in the numerator. Total Liabilities include “Accounts Payable” and “Deferred Revenue,” which are operational obligations, not financial debt. Using Total Liabilities gives you the Total Liabilities-to-Equity ratio, which is a different (and much higher) metric.

Pro-Tip for Active Traders

If you are comparing a company’s current D/E to its historical levels from 10 years ago, remember that the “jump” in debt you might see around 2019–2020 is often just the accounting change (bringing leases onto the balance sheet), not necessarily a sudden spending spree.

When looking at TSX-listed stocks, most Canadian companies report under IFRS, so the lease liabilities will be clearly broken out in the “Liabilities” section of the balance sheet.