off-balance sheet financing

Off-Balance-Sheet Financing

A type of company financing that does not appear as a liability on the company's balance sheet. A company may engage in off-balance-sheet financing if it wishes to keep its debt-equity ratio low and thereby appear as if it is carrying little debt. This, in turn, makes the company look more creditworthy than it would otherwise. A common form of off-balance-sheet financing is an operating lease, in which a company rents, rather than buys, a capital asset. In an operating lease, the company must record only the rental payments, and not the whole cost of the asset. While off-balance-sheet financing is permissible, it can become unsustainable and can hide a company's true financial state. The term came into common parlance when Enron collapsed in the wake of excessive off-balance-sheet financing. See also: Enron scandal.

off-balance sheet financing

the payment for use of an ASSET by hiring (LEASING) it rather than buying it. If a company wishes to install a new £50,000 photocopier it may enter into a lease agreement and agree to pay £12,000 per year over five years rather than buy the copier. Each year £12,000 is charged against profits in the company's PROFIT AND LOSS ACCOUNT. The copier does not appear in the BALANCE SHEET as a FIXED ASSET because the firm does not own it, but shows up as an annual operating cost which may be offset against PROFIT for TAXATION purposes. Off-balance sheet financing enables a company to make use of expensive assets without having to invest large sums of money in buying them. It also enables a company to keep its LONG-TERM CAPITAL EMPLOYED as small as possible, improving its measured RETURN ON CAPITAL EMPLOYED. See LEASEBACK.

off-balance sheet financing

the payment for use of an ASSET by hiring (LEASING) it rather than buying it. If a company wishes to install a new £50,000 photocopier, it may enter into a lease agreement and agree to pay £12,000 per year over five years rather than buy the copier. Each year, £12,000 is charged against profits in the company's PROFIT-AND-LOSS ACCOUNT. The copier does not appear in the BALANCE SHEET as a FIXED ASSET because the firm does not own it but shows up as an annual operating cost that may be offset against PROFIT for TAXATION purposes. Off-balance sheet financingenables a company to make use of expensive assets without having to invest large sums of money to buy them. It also enables a company to keep its LONG-TERM CAPITAL EMPLOYED as small as possible, improving its measured RETURN ON CAPITAL EMPLOYED.

See LEASEBACK.

References in periodicals archive ?
While we expect to periodically utilize this form of financing in the future, we continue to be committed to maintaining the assets and the debt on our balance sheet as opposed to utilizing off-balance sheet financing and recognizing the gain-on-sale revenue".
Flatley, President and chief Executive Officer of EPIC commented, "This off-balance sheet financing positions the Company for significant future growth by providing immediate low cost financing upon receivables generation and eliminates all debt from the balance sheet with the exception of the recent $130 million Senior Secured Notes Offering.
The complaint alleges that during the Class Period, defendants issued materially false and misleading financial statements caused by Delphi's improper accounting for off-balance sheet financing and vendor rebates.
IAMG's current business includes arranging sales and leasebacks, off-balance sheet financing of new aircraft orders, efficient structuring of airline balance sheets, and restructuring aircraft/airline financings.
Improper accounting for off-balance sheet financing caused fiscal-year (FY) 2000 cash flow from operations to be overstated by $200 million.
Balance sheet ratios are reasonable, with total members' equity of around 50%, but this takes into account off-balance sheet financing of the Mone gas-fired units.
This action coincides with the Company's strategy to raise off-balance sheet financing for its new real estate development.
NEW YORK -- Pervasive Practices to Obfuscate Statements Include Off-Balance Sheet Financing, Unrealistic Pension Assumptions and Aggressive Revenue Recognition
Total debt, including significant amounts of off-balance sheet financing, is currently peaking at near 70% of capitalization at MCNIC and 60% at MCN.
The rating also considers the off-balance sheet financing of its longer-dated land supply and the concentration of deliveries in Florida, Texas and California (the three largest state markets in the country).
Total debt, including significant amounts of off-balance sheet financing, could peak at near 70% of capitalization before it is worked down to more appropriate levels.
NYSE: HSE) announced today that it has signed a Term Sheet with Trust Company of the West ("TCW") covering a proposed $90 million non- recourse, off-balance sheet financing facility.