Equity Method

The equity method is an accounting technique used when a company owns a significant but not controlling stake (typically 20-50%) in another company. Instead of fully consolidating the other company’s financials, the owning company records its share of the other company's profits or losses in its own financial statements, adjusting the value of its investment accordingly. This approach reflects the company’s influence over the investee’s financial performance without fully controlling it. Essentially, it provides a more accurate picture of the economic relationship between the two companies.