giants2010

cpk123 Wrote:
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> it depends on amount of control that can be
> inserted. In spite of having > 50% of the target
> company, if you are unable to exert control over
> the company, yes - Equity method can be used.
>
> key point to differentiate (or an issue to
> understand) with regards to the equity method is
> that --> are you trying to make use of the equity
> method only for the purpose of reporting the share
> of the profits? Since you assets increase by a
> small amount - but you get a share of the profits
> - your performance measures ROE, ROA may be
> inflated using the Equity method. When you use
> Consolidation method - you are accounting for more
> of the assets. Additionally Net Profit Margin - in
> Equity method would be inflated - since you
> include earnings pro-rata share, but no sales. In
> consol - sales is also included - so your NI/Sales
> would be deflated with Consol. method.


Good point.