Dod101 wrote: Gengulphus wrote:
Dod101 wrote:In the 2017 Accounts for L & G, the Parent Company Balance Sheet is on page 222 and the Consolidated on is on page 120. Not sure where you are getting your figures from but it does not seem to be from these pages. Parent company Equity is shown as £6,376 million and the Consolidated figure is £505,877 million which is what we might expect. ...
I don't know what planet anyone who "might expect" Legal & General to have a consolidated equity figure of over 500 billion
pounds is living on, but it sure ain't this one...
Alas, *********************** what I was trying to say was that one would expect to find parent company equity to be a lot less than the consolidated equity especially in a group as capital intensively as L & G. I too was in a bit of a rush when I wrote that.
Well, I don't know how much less the parent company equity needs to be than the consolidated equity to qualify in your view as "a lot less" and not just "less", but the consolidated balance sheet on page 120 of Legal & General's 2017 balance sheet shows a total equity figure of £7,919m. £505,877m is that balance sheet's total assets
And if the parent company's figure of £6,376m counts as "a lot less" than the consolidated figure of £7,919m at 19% below it, then equally in Matt's example of the Next 2014-2015 accounts the consolidated equity figure of £321.9m is "a lot less" than the parent company's £1,445.6m at 78% below it! The point is really that there is no particular reason to expect there to be any particular relationship between them, and the reason why not becomes clear when one looks at how the calculation of the equity figure changes as one moves from considering the parent company only to considering the consolidated group: the parent company's book value for its investments in the subsidiaries is removed from the assets being counted, and the subsidiaries' assets and liabilities are added to the assets and liabilities being counted.
As a result, the change from the parent company's equity figure to the consolidated equity figure is plus the subsidiaries' total net assets, minus the parent company's book value for its investments in the subsidiaries. So the consolidated equity figure will be less than or more than the parent company's equity figure according to whether the subsidiaries' total net assets are less than or more than the parent company's book value for its investments in the subsidiaries, and my hasty comment last night "... and (without looking - I'm short of time) that presumably means that the subsidiaries have negative net assets / equity, i.e. more liabilities than assets
" was wrong because which way the change goes basically depends on how the subsidiaries' total net assets compare with that book value, not with zero. ("Basically" because it needs careful interpretation for any subsidiaries that are not 100% owned, to make the correct minority interests adjustments. But I'm not
suggesting that anyone tries actually calculating the correct "subsidiaries' total net assets" figure - this is just explaining the basic reason why there's no strong relationship between the parent company and consolidated equity figures, which is essentially another aspect of there being no strong relationship between the book values and market values of assets.)
Finally, to anyone wondering why separate accounts are given for the parent company, when investors should only pay attention to the consolidated accounts: that's largely
true, but not quite entirely. The key point that makes it not entirely true is that each subsidiary is itself a limited liability company: that means that if a subsidiary gets into trouble, the parent company and other subsidiaries can only suffer losses as its creditors (if e.g. the parent company has made a loan to the subsidiary, it might have to end up writing that loan off), as a result of other contractual arrangements (if e.g. the parent company has guaranteed some of the subsidiary's liabilities) and/or voluntarily (it might be worth bailing the subsidiary out in order to avoid costly damage to the parent company's other businesses and/or reputation). In dire cases, the fact that the parent company and the other subsidiaries can only suffer losses in those ways might make the difference between only the subsidiary going bust and it dragging the entire group down with it. So if one is worried about a subsidiary of an otherwise good-looking investment going bust, just what the parent company accounts and their notes say might become of considerable interest.