One of the problems I am doing asks to calculate the parent company’s implied PE multiple without regard to its associate; the answer deducts the share of the associate’s market capitalization from the parent company and then divides that by earning after taking out the associate net income.
Ok so I did get the denominator part, but the numerator is throwing me off. If recorded the investment in associate with equity method, why do we suddenly look at the market cap of the associate to adjust the numerator? I thought under equity method, fair value adjustments are totally ignored.
I saw a similar thread asking the same question, but decided to create a new one since the answer wasn’t too clear to me.