Hi since net income and equity are same under acquisition method and equity method what impact on this ratio? I read on elan formula that it is better as equity is lower…
any views on this please?
Net Income is same under acquisition method and equity method. Equity is not the same between the acquisition method and the equity method. Equity is higher under the acquisition method. Since equity is lower under equity method, ROE will be higher.
It is because assets are higher under acquisition hence equity higher to balance? Coming from I.e A+L = E
I think it is because of goodwill equity is higher… Can someone confirm please?
Yeah thats essentially correct, the Minority Interest is included in equity under the Acquisition method which increases it.
Yes I agree so , two possibilities under acquisition equity is higher under full goodwill whereas lower under partial.
Minority interest is not included under equity hence it’s lower . Acquisition on the other hand includes minority interest therefore equity is higher