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When a company uses operating leases in large doses like CVS then the shorthand adjustment to EBIT vs the longhand can be material. This is getting pretty granular but I wanted to just point out the difference between the two. Data is slightly dated to CVS's last 10-K:

Restated Financials
Operating Income with
Operating leases reclassified as debt = $1,996.45
Debt with Operating leases reclassified as debt = $13,677.16

Full Operating lease adjustment
Reported Operating income = $1,454.70
+ Current year's operating lease expense = $1,068.30
- Depreciation on leased asset = $773.93
Adjusted Operating Income = $1,749.07

Imputed Interest Expense = $541.75

Difference between two methods = -$247.39

There is a 81 basis point difference on EBIT margin downwards. This would make a difference in the ROIC - WACC spread and might affect where the company sits on the four quadrant power chart.

This won't always be material but its good to know in case it is like in this example.

Matthew
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