What criticisms have been leveled at the equity method?
its emphasis on the 20-50% of voting stock in determining significant
influence vs. control
allowing off-balance sheet financing
potential biasing of performance ratios
Relative to consolidation, the equity method will report smaller amounts for assets, liabilities, revenues and expenses. However, income is typically the same as reported under consolidation. Therefore, the company that can use the equity method, and avoid consolidation, is often able to improve its debt-to equity ratios, as well as ratios for returns on assets and sales.