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 ?
Notwithstanding the much-touted concerns about the glaring loopholes in IAS 17 -- which have influenced many many large leasing structures over the years leading to an estimated trillions of dollars of off-balance sheet financing -- the standard was quite fine in some ways.
The new partnerships are seen as a quick result of Kenya's desire to shift away from pure debt financing with the new emphasis being placed on Public-Private Partnerships and the need to explore innovative off-balance sheet financing for the country's infrastructure needs.
The perceived maturity of renewables and better risk management is also facilitating more off-balance sheet financing structures, from a diversity of financial sources, beyond the United States and Europe.
These emails promise to put your money into areas which are not covered by financial regulations such as rainforest in Brazil, car parking spaces, foreign holiday homes, off-balance sheet financing, diamonds and a whole host of other esoteric investments.
These emails promise to put your money into areas that are not covered by financial regulations such as rainforest in Brazil, car parking spaces, foreign holiday homes, off-balance sheet financing, diamonds and a whole host of other esoteric investments.
The government has stepped up its efforts to correct irregularities in the industry and had targeted high-risk activities such as off-balance sheet financing.
Such agreements result in off-balance sheet financing. Under prior rules, the repo leg of the agreement was handled as a sale; now such agreements will likely result in secured borrowing accounting for most repurchase financings.
The latest rules are in line with steps that the central government has taken to improve the fiscal transparency and accountability of local governments by prohibiting off-balance sheet financing.
The tightening fiscal positions of regional governments may also spur GRE debt issuance that can facilitate off-balance sheet financing.
The tightening fiscal positions of regional governments may also spur GRE (government-related enterprises) debt issuance that can facilitate off-balance sheet financing, it said.
This includes the size of the market, the variations across sub-regions, the scale of financing gap, the trade finance devoted to intra- African trade, the relative importance of on-balance sheet versus off-balance sheet financing, and constraints faced by banks," AfDB said in a statement ahead of the release of its report.
method used to provide off-balance sheet financing to a corporate entity for the acquisition and development of a commercial facility or site, with substantial credit support for debt issued by or through an investor or capital source, usually a financial institution." A Synthetic lease transaction if typically structured using an SPV that is created solely for the purpose of a transaction or into a series of transactions.