FSA: equity method

in equity method, the income from associate is recorded below EBIT or not? THanks. if exclude investment in associate and recalculating interest coverage ratio, will it be the same as before? why? Thanks.

equity method uses proportionate income from the associate no? if you exclude the associate then the ICR should be the same since you did not include the pro rata income from the associate. correct me if i am wrong though.

wait so the “investment in XYZ corp” one line is included in EBIT or not? If it is not, then you’re right, there would be no effect.

Investment in associates is equity method (significant control) it is below EBIT in “one-line”. The “one-line” is revenues and expenses netted out. EBIT is operating income and investment in associates is not operating income, that is why it is below it. Pull up a financial statement from SEC.gov for a large company and you will see this for yourself. It is the same before and after because EBIT does not include investment in associates.

after on www.sec.gov, which link to follow to get a financial statement? Thanks. starbuk Wrote: ------------------------------------------------------- > Investment in associates is equity method > (significant control) it is below EBIT in > “one-line”. The “one-line” is revenues and > expenses netted out. > > EBIT is operating income and investment in > associates is not operating income, that is why it > is below it. Pull up a financial statement from > SEC.gov for a large company and you will see this > for yourself. > > It is the same before and after because EBIT does > not include investment in associates.

click on company search. anyway I found these in addition to pages 130 - 134 on the CFAI FSA book: Nestle has investments in associates (like you asked) and you can see it is below their EBIT and above net income (see page 6 of the PDF): http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/Financial_Statements/2010-Financial-Statements-EN.pdf This company has investments that it consolidated so it has to take out minority interest: http://www.sec.gov/Archives/edgar/data/1163165/000095012310099554/h76057e10vq.htm

thanks for the clarification starbuk