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- Inter-corporate investments are very common in this modern age. The accounting for these investments is based on the intention of the management for holding the investment in other company. As per US GAAP investments are classified into trading securities, held to maturity securities and available for sale securities.
- Cost method, market value method and lower of cost and market value methods are used for accounting of various investments. Trading securities are valued at fair market value, available for sale at fair value or the mark-to-market method and held for maturity are valued at amortized cost.
- Equity method of accounting or consolidation method of accounting or proportionate consolidation method of accounting is used for inter-corporate investments. Proportionate consolidation method is not in practice in US. In other countries, this method is used for investment in joint ventures.
- Classification of investment as per US GAAP effect both the firm's reported financial performance and financing and investment decisions. Analyst should analyze both these perspectives. While analyzing the investment activities, the operating performance should be separated from the investment performance of a company. This helps to analyze the operating performance clearly.
- If a company has significant but non-controlling ownership of less than 50% of a company's ownership, then it is called as minority interest. The balance of minority interest account is shown in the balance sheet of the parent company. In some instances, minority interest is considered as equity for the purpose of analysis.
- Companies also required that to disclose foreign operations if it the segments are operating in more than one country. A reportable segment is one which should be exceed 10% of either sales to unaffiliated customers as compared to consolidated revenues or identifiable assets as compared to consolidated assets. Analysis of segment report gives the analyst good understanding about the company's operations.