Are equity investments considered operating or nonoperating and where on the P&L does the income from the investment get recorded, above or below EBIT?
As a a follow up question, I looked through BIWS modeling program and I think they said that when you go from enterprise value to equity, you would add equity investments, indicating that the income wouldnt be included in EBITDA and thus not captured in EV (like a nonoperating asset).
Thanks in advance for clearing this for me!
Nonoperating asset for minority investments, interest or dividends is included in interest income for minority passive investments.
A portion of the subisdery’s net income is included in retained earnings and income statement if the company is a minority active investment (20%-50%). Dividends and proportionate net income losses (gains) in this case reduce (increase) acquisition cost on the books. On the income statement, dividends are included in interest income, and the share of net income gain as a one line item after operating income (EBIT), but before taxes taxes.This is called the equity approach.
That depends on what type of equity investment. If it is a minority interest, you need to subtract that from EV to get to equity. If it is a minority passive investment, then it’s part of equity and can be liquidated and earned after paying out all claimholders, so you might or might not include it under cash and near cash investments to pay off liabilities, depending on what the takeover party sees fit for the investment. If it is a minority active investment, then it is part of your own equity and should not be subtracted from EV.
Someone correct me if I’m wrong, I haven’t started on equity yet.