Off-balance sheet

Off-balance sheet (hors bilan) refers to financial obligations, commitments or risks that do not appear directly in the balance sheet but may have a significant economic impact — guarantees given, operating leases (pre-IFRS 16), firm purchase commitments, undrawn credit facilities used as contingent liabilities, and unfunded pension obligations. In financial due diligence, exhaustive identification of off-balance sheet items is critical: they represent contingent liabilities or latent assets that modify the true economic net worth and the net debt definition. Notes to financial statements and the commitments schedule are the primary identification sources.

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Example: due diligence on a French SME reveals off-balance sheet items totalling CHF 4.6 million: CHF 2.8 million of guarantees given to commercial partners, CHF 1.2 million of firm purchase commitments and CHF 600,000 of unrecognised pension obligations. After applying probability-weighted call assumptions, CHF 2.3 million is integrated as debt-like in the net debt bridge — directly reducing the equity value paid to selling shareholders.

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Hectelion identifies and quantifies off-balance sheet items as one of the most important and most frequently overlooked steps in financial due diligence.