Equity income classification - after EBT?

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andrevc

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On SS7’s last chapter (Integration of Financial Statements Techniques), P.187-188 on Schweser, there are two tables with Dupont analysis for the company mentioned in the example. One with ROE calculated including Equity income, and one excluding the impact from Investment in associates (removing from IS and BS).
My question is: where do we usually show equity income in the IS? Is it right after EBIT? That’s my understanding. However, in that same example, there is a footnote saying that they do not include equity income on EBIT or EBT, so implicitly they’re including it along with taxes, which in my view doesn’t make too much sense. Could someone clarify this point? Thanks!
 
Income from Investments accounted for using the Equity Method is classified as revenue, at least under US GAAP. I am not sure how that fits with your question, but it would appear as revenue. For example, at my current employer, it is buried in a line called ’ Other Revenue’ since it is a non-material amount.
 
Consolidating vs. Equity Method will almost always result in higher Debt/Equity ratio. That may be why DuPont calculates with and without. I haven’t gotten to that part in my studies, yet.
 
Hm, i don`t think that according to CFAI we are supposed to classify the equity income line as revenue on the parent’s income statement.
 
andrevc wrote:Hm, i don`t think that according to CFAI we are supposed to classify the equity income line as revenue on the parent’s income statement.
Click to expand...
You’re mistaken.
 
So it is often booked as “Other Revenue” or something along those lines?
Then, obviously, it must usually impact EBIT and EBT, I assume?
I guess their example was just for the sake of simplification.
 
If you see an “Investment Income” or “Net Investment Income” line on the P&L, you can assume it is in there. If not, it is pobably in a miscellaneous bucket like “Other Income”.
 
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