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.

单词	off-balance sheet financing
释义	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.
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