Off-balance-sheet financing

What it means

Arrangements that give a company the use of an asset or the benefit of borrowing without showing the liability on its balance sheet.

The exam angle

Largely curtailed for leases by IFRS 16 and ASC 842, which brought most operating leases on balance sheet.

Where it appears in the syllabus

• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.
• Financial Statement AnalysisCFA Level II · exam weight 10–15% · Intercorporate investments, pensions, multinationals, report quality.

Related terms

• Earnings qualityThe degree to which reported earnings are sustainable and backed by cash rather than by estimates and one-offs.
• GoodwillThe excess of a purchase price over the fair value of the identifiable net assets acquired.
• Accrual accountingRecognising revenue when it is earned and expenses when they are incurred, regardless of when cash moves.
• Balance sheetA statement of what a company owns and owes at a single point in time.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Cash conversion cycleThe time between paying for inventory and collecting cash from the customer.