标题: Investments in Associates - Change on Leverage? [打印本页] 作者: parott 时间: 2011-7-13 16:29 标题: Investments in Associates - Change on Leverage?
Pertinent Info:
Total Assets: 56,396
Investment in Associate: 5,504
Stockholder's Equity: 30,371
We're adjusting ratios for the effects of removing an investment in an associate accounted for using the equity method.
My question, if existing Leverage (Assets/Equity) was 1.86, wouldn't we need to remove the associate asset from assets and equity, thereby increasing leverage to 2.04?
Wouldn't it be removing investment in associates and adding the amount to cash. As if you have sold off the investment.
So total assets and equity will not change.作者: tikfed 时间: 2011-7-13 16:29
I vaguely recall this question - if I'm not mistaken, you've left out a few key details. In this case, I believe the adjustment to remove the investment in an associate is being made because the analyst had determined that comparable industry participants account for similar investments as available-for-sale. So while you're removing the investment in an associate from both assets and equity ... equity will be increased by any unrealized gain on the investment.
Though, I could be remembering wrong...
Given your basic set of facts - if you are simply "removing" an investment altogether, and not accounting for it some other way (which begs the question... why not?) - then your adjustment would be correct - reduce assets and equity.作者: giorgio10 时间: 2011-7-13 16:29
So, looks like the answer from source is correct. TA/E does not change.
