A company's balance sheet sums up what it owns and what it owes. But not all obligations enter it the same way. A loan is recorded as debt; a lease, a purchase commitment or a minority stake can stay off the balance sheet, described only in the notes. This is an off-balance-sheet commitment: a real obligation, often quantifiable, that does not swell the debt line one reads first. This concept explains what the balance sheet shows, what it leaves unsaid, and why that changes the reading of risk.
1 The definition
A real obligation that does not enter the balance sheet.
The definition
Owing to pay without recording it as debt
An off-balance-sheet commitment is an obligation to pay, or a risk assumed, that appears not in balance-sheet debt but in the notes to the accounts. The firm has committed; the matching asset or service exists; but the accounting rules do not classify that commitment as a loan. It is therefore real and disclosed, while remaining absent from the debt figure that investors and creditors read first. The distinction is not between true and false, but between what appears on the balance sheet and what is read elsewhere.
3 Legal, not hidden
Provided for by the rules, subject to disclosure.
The framework
The rule requires disclosure, not balance-sheet recording
Off-balance-sheet is provided for by accounting standards: they decide which commitments enter debt and which are described in the notes. The counterpart is transparency: these obligations must be disclosed, described, quantified where possible. Legal off-balance-sheet is therefore clearly distinct from fraudulent concealment: in one case the information exists and sits in the notes; in the other it is hidden. The real question is not legality, but readability: does accurate information, filed where few look, truly inform? Securitisation is a special case, where an asset and its debt are housed in a dedicated entity.
4 Reading leverage
The real weight is read in the notes.
The use
Measuring real debt, not just reported debt
To judge a firm's leverage, that is, its weight of debts relative to its means, balance-sheet debt is not enough. One must add the relevant off-balance-sheet commitments, allowing for their horizon and nature: a ten-year lease or a purchase commitment does not weigh like a loan due tomorrow. Two firms with similar balance sheets can carry very different obligations. Reading real leverage is therefore reading the notes as much as the headline lines, and asking not only "how much debt?", but "which commitments, over what horizon, carried by whom?".
5 Takeaways
The essentials.
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A real obligation: owed, but recorded in the notes rather than as balance-sheet debt.
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Several forms: leases, purchase commitments, minority stakes and dedicated vehicles.
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Legal and disclosed: provided for by the rules; to be distinguished from fraudulent concealment.
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Real leverage: read in the notes, not only on the debt line.
This concept sheds light on an analysis First published: August 25, 2026