FinancialAnaly

Under Equity Method, you only recognize your investment (at cost) on the B/S. No impact on Equity.

Under Proportionate Consolidation, you consolidate your % stake (usually 50%) of the subsidiary's Assets and Liabilities. Since you are only consolidating your share proportionally, there is no impact on Equity.

Under Consolidation, you consolidate the ENTIRE subsidiary, including the % you do not own. Because you have essentially over-allocated the subsidiary's assets, you create an account called Minority Interest to account for % not owned in the Subsidiary. Minority Interest goes directly into S/E - and thus Equity INCREASES.

Therefore, going from Equity Method to Consolidation means your Equity increases. And Net Income is the SAME under all THREE methods. Therefore;

Equity Method ROE = Net Income (same) / Equity (same)
Consolidation ROE = Net Income (same) / Equity (INCREASED by Minority Interest)

Same numerator, higher denominator -- therefore, ROE decreases under Consolidation.

(There are a lot more details to this, but the basics are there!)