Ace the AFP Exam 2026 – Boost Your Financial Wizardry!

Off-balance-sheet financing is characterized by the fact that it does not appear on the balance sheet of a company. This type of financing allows a company to obtain funds or resources without directly impacting its liabilities or equity as recorded in the balance sheet. Companies often utilize off-balance-sheet financing to improve their financial ratios or to keep debt levels low, which can enhance their appeal to investors and creditors.

This method can include arrangements like operating leases, joint ventures, or certain contractual agreements where the assets and liabilities are not recorded in the financial statements, thereby keeping the company’s financial health looking stronger than it might actually be. Understanding this characteristic is crucial for assessing the true financial position of a company, as off-balance-sheet financing can significantly affect risk assessments and financial analysis.