Hello everyone
I have a quick accounting question - lets say you are looking at the statements of a company that has a JV in which it owns 40% of it. Every year this company puts 100 of Capex in the JV. How would this 100 be reflected in the 3 financial statements? Will this 100 of Capex simply be reported as Capex on the CFS?
Many thanks in advance!
bump, interested.
curious to know whether this is affected by the fact that it owns less than 50% of the firm.
If the JV is consolidated, it will flow through the 3 statements in the same way as if the company owns 100%. Net income to JV is backed out after consolidated net income to get to net income to company shareholders so that part will implicitly account for the 50% of earnings the company doesn’t own.
Basically this. Depending on what the point of the capex question is, it'll likely come down to the accounting treatment of the JV. If consolidated, then you treat the three statements as normal but need to account for the non-controlling interest, whose retained earnings from the net income will be a liability on the balance sheet. However, as we know, this will be added back for EV, since EV is calculated on a capital-structure-neutral basis.
However, if this is a JV that is not consolidated (which seems like the more probably without further information) for accounting purposes, what you have is basically an investment. So for the three statements, the capex isn't on the P/L (never is), then I guess it's -100 cash to investing activities. Depending upon the retained earnings of the JV, our target might receive it's non-controlling interest which would go through the three statements (i.e. credit to P/L for increase in the value of an investment), non-cash adjustment to cash flow statement, increase the non-current asset on the balance sheet. Of course, if this is an EV question, our JV equity is within our equity value but is removed as a non-core asset for EV purposes.
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