Off-balance-sheet
Imagine that you have a toy chest full of toys, but you also have some toys that you keep hidden in a secret drawer that nobody else knows about. These hidden toys don't take up any space in the toy chest, and nobody else knows that they are there. This is kind of like what happens with off-balance-sheet items.
In finance, companies have things they own or owe, called assets and liabilities, listed on their financial statements. However, sometimes there are things that companies do that are not listed on these statements. These things are called off-balance-sheet items.
For example, imagine that a company wants to buy a building, but they don't want to put it on their balance sheet because it will make their debt look too high. So instead, they use a special kind of loan called a lease. A lease is like renting a building, but the company makes payments that make it look like they own the building. However, since they don't technically own the building, they don't include it on their balance sheet.
Another example is when a company has a subsidiary, which is like a brand new company that the original company owns. Sometimes, the subsidiary will have its own debts or assets, which the parent company doesn't include on its balance sheet because it's technically not the parent company's liability or asset.
Off-balance-sheet items can be important for investors and analysts to pay attention to because they affect a company's overall financial health. However, because these items are hidden, it can be hard to tell exactly what is going on without digging deeper into the financial statements.
In finance, companies have things they own or owe, called assets and liabilities, listed on their financial statements. However, sometimes there are things that companies do that are not listed on these statements. These things are called off-balance-sheet items.
For example, imagine that a company wants to buy a building, but they don't want to put it on their balance sheet because it will make their debt look too high. So instead, they use a special kind of loan called a lease. A lease is like renting a building, but the company makes payments that make it look like they own the building. However, since they don't technically own the building, they don't include it on their balance sheet.
Another example is when a company has a subsidiary, which is like a brand new company that the original company owns. Sometimes, the subsidiary will have its own debts or assets, which the parent company doesn't include on its balance sheet because it's technically not the parent company's liability or asset.
Off-balance-sheet items can be important for investors and analysts to pay attention to because they affect a company's overall financial health. However, because these items are hidden, it can be hard to tell exactly what is going on without digging deeper into the financial statements.