Under equity method for associates, why is parent EBIT (and therefore interest coverage ratio) not impacted by subsidiary net income? I know for the B/S line item, the parent adds proportional NI and substracts proportional divs to get subsidiary investment value, but doesn’t the parent ALSO recognize subsidiary net income as a line item on the parent I/S, which would therefore impact EBIT and therefore impact interest coverage ratio? Or does that line item somehow not impact EBIT? Thanks so much for any help!
It’s shown below EBIT, so it has no effect on EBIT or the interest coverage ratio.
Great, thanks S2000. So, where exactly on the I/S does the adjustment show up? Is it a post-tax number right before EBIT, and therefore impacts NI but not EBIT?
After interest expense, but before income taxes.
Similar to gains/losses.
Got it, thanks S2000. So it would go in “other income” or “income from equity method investments” or something like that, just after EBIT and interest expense?
Yup.
Something like Income from Affiliate.