Consolidating an associate company
An associate is a company in which a group of companies has a substantial stake, but not outright control.This usually means more than 20% but less than 50%.
The group balance sheet shows the value of the shares owned in the associates.Although shown separately, they are treated like any other investment.When calculating an EV the value of the holdings in associates should be deducted.Alternatively, the cost of completely buying out the associate should be added - but this approach makes more sense for subsidiaries.When calculating an EV/EBITDA, the EBITDA should be adjusted in line with the EV.To consolidate is the action of combining of assets, liabilities and other financial items of two or more entities into one.
In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements, where all subsidiaries report under the umbrella of a parent company.
These statements are called consolidated financial statements.
Consolidation also refers to the merger and acquisition of smaller companies into larger companies.
A consolidation, however, differs from a merger in that the consolidated companies could also result in a new entity, whereas in a merger one company absorbs the other and remains in existence while the other is dissolved.
In financial accounting, consolidated financial statements provide a comprehensive view of the financial position of both the parent company and its subsidiaries, rather than one company's stand-alone position.
In business, consolidation occurs when two or more businesses combine to form one new entity, with the expectation of increasing market share and profitability, and the benefit of combining talent, industry expertise or technology.