An impact on company ratios from adopting accounting rule changes in AASB16 Leases is

The adoption of AASB 16 Leases, an accounting standard issued by the Australian Accounting Standards Board (AASB), has significant impacts on a company's financial ratios. Here's a step-by-step explanation:

1. Introduction to AASB 16 Leases: AASB 16 is a new accounting standard that changes the way companies account for leases. Previously, many leases were classified as operating leases and were not included on a company's balance sheet. Under AASB 16, all leases (with a few exceptions) are now recognized on the balance sheet as a right-of-use asset and a lease liability.

2. Impact on Debt Ratios: The inclusion of lease liabilities on the balance sheet increases a company's total liabilities, which can increase debt ratios such as the debt-to-equity ratio and the debt-to-asset ratio. This could make the company appear more leveraged or risky to investors and creditors.

3. Impact on Profitability Ratios: The change in lease accounting can also impact profitability ratios. Under AASB 16, companies recognize a depreciation expense for the right-of-use asset and interest expense on the lease liability. This could decrease net income in the early years of a lease, reducing profitability ratios such as return on assets and net profit margin.

4. Impact on Liquidity Ratios: Liquidity ratios such as the current ratio may also be affected. The current portion of the lease liability is classified as a current liability, which could increase current liabilities and decrease the current ratio.

5. Conclusion: The adoption of AASB 16 Leases can significantly impact a company's financial ratios, making the company appear more leveraged and potentially less profitable and liquid. However, it's important to note that these changes are due to accounting rule changes and not changes in the company's underlying operations or cash flows.