Off Balance Sheet Financing

Formal

The method of acquiring the use of an asset without it being included as an ‘owned’ asset on the Balance Sheet. Rules detailing how this is included are outlined in a document called FRS 17. It is very important that companies tell the public, investors, and staff how much capital, or assets are utilised to generate profits. This allows an appreciation of company profitability relative to the funds needed to generate such profits.

Straight Talk

A technique to finance the use of an asset by a corporation in such a way that it is excluded from the balance sheet in order to reduce the monies tied up in a business and to create an artificially good impression for everyone who examines the financial statements. Most common example is use of a vehicle under contract hire - not counted as a company owned asset, not included on the balance sheet, but certainly used in the running the business.