At fiscal year-end December 31, 2015, ShopWorld had the following assets and liabilities on its balance sheet (in millions):
|
Current liabilities
|
$9,459
|
|
Long-term debt
|
12,330
|
|
Other liabilities
|
1,180
|
|
Total assets
|
37,411
|
ShopWorld reported the following information on leases in the notes to the financial statements.
Total rent expense was $195 million in 2015, $189 million in 2014, and $188 million in 2013. Most of the long-term leases include options to renew, with terms varying from 1 to 50 years.
Certain leases also include options to purchase the property.
Future minimum lease payments required under uncancelable lease agreements existing at December 31, 2015 were:
|
Future Minimum Lease Payments (in millions)
|
Operating Leases
|
Capital Leases
|
|
2016
|
$224
|
$7
|
|
2017
|
201
|
9
|
|
2018
|
193
|
9
|
|
2019
|
168
|
10
|
|
2020
|
142
|
10
|
|
After 2020
|
3,935
|
138
|
|
Total future minimum lease payments
|
$4,863
|
$183
|
|
Less: Interest
|
|
(70)
|
|
Present value of minimum capital lease payments
|
|
$113
|
Required: Your friend, Liz, loves to shop at ShopWorld and is now interested in investing in the company.
Tom, another friend of Liz, has told her that ShopWorld's debt structure is risky, with obligations nearly 74% of total assets. Liz sees that debt on the balance sheet is 61% of the total assets and is confused by why Tom thinks ShopWorld is risky.
Be sure to explain clearly to Liz what information appears on financial statements, as well as what information does not appear directly on the financial statements.