| Investopedia: "Off-Balance-Sheet Finance is a way of raising money that does not appear on the balance sheet. This is unlike loans, debt and equity, which do appear on the balance sheet. Examples of off-balance-sheet financing include joint ventures, research and development partnerships, and leases (rather than purchases of capital equipment)" (credit: investopedia.com) |
| Investopedia: "Companies argue that off-balance-sheet techniques benefit investors because they allow management to tap extra sources of financing and reduce liability risk that could hurt earnings. That's true, but off-balance-sheet finance also has the power to make companies and their management teams look better than they are. Although most examples of off-balance sheet debt are far removed from the shadowy world of Enron's books, there are nonetheless billions of dollars worth of real financial liabilities that are not immediately apparent in companies' financial reports. It's important for investors to get the full story on company liabilities." (credit: investopedia.com) |
Mention the phrase "off-balance-sheet financing" and your listener will probably think of Enron and other companies' sleazy financial shenanigans. However, it is so simple: projects can be financed either on balance sheet or off balance sheet. On balance sheet means that all loans, credit and cash that are used in the project, must be shown on the purchasing company's balance sheet, and that the financing company can claim the assets of the purchasing company in the event of default on payment. New capacity is often financed thru project finance, which is also known as off-balance-sheet finance.
| Investorwords: "Off-Balance-Sheet Finance is financing from sources other than debt and equity offerings, such as joint ventures, R&D partnerships, and operating leases. " (credit: investorwords.com) |
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