Off Balance Sheet Liabilities

A very troubling final observation about balance sheet ratios concerns off-balance sheet liabilities. Most of the trends you develop and track will be affected by obligations that do not show up.

Among the many tricks used by executives in those corporations caught deceiving stockholders in the past, was one in which off-balance sheet liabilities were carried, at times in the billions of dollars. As a consequence, the value of the company and its stock could be vastly inflated. When the balance sheet leaves out important liabilities, it also affects working capital ratios as well as any study of capitalization.

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