Hi everyone, I hope I have posted this in the same place.
When calculating TNW, do we consider investments in subsidiaries to be tangible assets? (Let’s assume that we are looking at unconsolidated financial statements).
I ask because what if those subsidiaries are composed of intangible assets? Does that affect whether we class the sub. as tangible or not?
I hope this question makes sense. Please let me know if not.
Thanks
So, this is a bit of an interesting question. In Consolidated Financial Statements, Investment in Subs gets eliminated. In other words, Investment in Subs is zero by definition in Consolidated Financial Statements. This may be beyond the scope of the CFA Curriculum, so I am not sure if you are asking for personal reasons.
As a practical matter, if you ever need to calculate TNW to prove compliance with terms of a loan, it will be defined in the loan documents. I used to have to do this every quarter. Definitely check on how they define TNW, because the definition may vary.
Now are there scenarios where one may need to calculate TNW on a standalone parent company (subs not consolidated, but represented in a single “Inv in Subs” line)? I don’t know. I am less familiar with Regulatory Accounting than I am with GAAP. It wouldn’t surprise me if some regulator was interested in this view.