Joint Venture Equity Method Accounting
Debt investor hat on, and looking at a company that has an addback called EBITDA from equity investments. The addback matches to the total of the distributed earnings from equity investments in CFO + distributions of capital from equity investments in CFI in 2017...but the addback exceeds cash received by $20mm in 2016.
It appears the company also puts in capital to these JVs on an annual basis
Is there anything else I should be thinking about here? My inclination is that you limit the EBITDA addback to the total of whats in CFO+CFI to be conservative (and avoid that $20mm overage in 2016), but I've never had to look at this before and no one's around to ask
EBITDA from equity investments is added into the income statement right? Some of it could be non-cash / not distributed as dividends so won't show up in the cash flow statement.
In my sample size=1 example, its added below the line so EBITDA from Equity Investments is reflected in net income, and then the contribution is taken out in CFO on the cash flow statement. If there is a dividend distribution from the JV, that gets reflected in CFO (but is not reflected in the income statement...so you get a negative earnings from equity investments line in CFO and then a positive 'Distributed earnings from equity investments line' in CFO), and a return of capital is reflected in CFI.
I guess what i'm getting at, is this addback legitimate? What do you do if you want to be conservative but reasonable? Add back the actual cash you've received, vs you share of earnings?
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