Associate company

An associate is a company in which a group of companies has a substantial stake, but not outright control. This usually means more than 20% but less than 50%. More than 50% would give the group control and make it a subsidiary.

Associates are not fully consolidated. Revenue and profits from associates (and joint ventures) are shown on the group P & L but they are shown separately.

The group balance sheet shows the value of the shares owned in the associates. Although shown separately, they are treated like any other investment.

When calculating an EV the value of the holdings in associates should be deducted. Alternatively, the cost of completely buying out the associate should be added - but this approach makes more sense for subsidiaries. When calculating an EV/EBITDA, the EBITDA should be adjusted in line with the EV.