Equity Meth - the blue kind

CFA Level II FRA
#1

Hi all,

So I noticed in a question that under the equity method the current asset ratio (CA/CL) does not take into account our investment in the investee??? Same goes for the (D/E)??

So would I be right in saying that under the equity method we do not consider investees balance sheet items, and income statement items (apart from NI), when looking at ratios? It’s all just represented as single line in B/S - invesment income?

#2

I believe that the reason the current ratio doesn’t take the investment into account is that the investment isn’t considered a current asset; it’s a long-term asset.

You should include the investment in all ratios as appropriate.

#3

Thank you :slight_smile:

#4

You’re welcome.