Definition:

Income/(Loss) from Affiliates refers to the share of profit or loss that a company earns from its investments in other companies, typically through equity method investments. This figure reflects the company's proportionate share of the affiliate's net income or loss.

Examples

1. A company owns 30% of another company and reports its share of the affiliate's net income as part of its financial statements.
2. A business has a 25% stake in a joint venture and records its share of the joint venture's losses.

Formula:

Income/(Loss) from Affiliates = (Ownership Percentage) x (Affiliate's Net Income or Loss)

How to use the metric:

This metric is used to assess the financial impact of a company's investments in other entities. It helps in understanding how these investments contribute to the overall profitability and financial health of the company.

Limitations:

1. The metric may not provide a complete picture of the affiliate's financial health, as it only reflects the investor's share of net income or loss.
2. It can be influenced by accounting policies and estimates used by the affiliate.
3. It may not be comparable across companies due to differences in ownership percentages and accounting practices.

Applies to:

Industries with significant investments in joint ventures or associated companies, such as energy, real estate, and manufacturing, where companies often have strategic partnerships or equity stakes in other entities.

Doesn't apply to:

Industries with minimal or no investments in affiliates, such as small-scale retail or service-oriented businesses, where operations are typically independent and not reliant on equity investments in other companies.

Summary:

Income/(Loss) from Affiliates is a financial metric that captures a company's share of the profits or losses from its investments in other entities. It is useful for evaluating the contribution of these investments to the company's financial performance but has limitations due to accounting practices and lack of comparability. It is most relevant in industries with significant equity method investments.