If a company engages in off-balance sheet financing, generally the effect is:

I. to cause assets to be understated.
II. to increase leverage ratios.
III. to increase cash flows.
IV. to cause liabilities to be understated.

A)I, II, III, and IV
B)I, III, and IV
C)I only
D)IV only

Question

If a company engages in off-balance sheet financing, generally the effect is:

I. to cause assets to be understated.
II. to increase leverage ratios.
III. to increase cash flows.
IV. to cause liabilities to be understated.

A)I, II, III, and IV
B)I, III, and IV
C)I only
D)IV only

Quizplus · Accepted Answer

Off-balance sheet financing involves keeping debt off the balance sheet, which understates assets and liabilities, increases leverage ratios, but does not affect cash flows.

If a Company Engages in Off-Balance Sheet Financing, Generally the Effect