IN 100 WORDS
Off-balance-sheet financing allows companies to strategically manage their financial reporting and maintain a healthier balance sheet, thereby enhancing their financial standing and creditworthiness. Usually, this is done to keep the balance sheet healthy and to ensure that the financial covenants like debt-to-equity ratios and leverage ratios are low.
This practice allows corporates to maintain a less leveraged balance sheet thus allowing them a higher capability to borrow. Also, healthier financial ratios means healthier credit rating which directly impacts the company’s cost of borrowing and liquidity position.
Tip: Balance Sheet less leveraged, healthier rating.
Sugandha Singhal
Seasoned Treasury Professional
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