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Naive question about profit

I wonder if someone here can explain to me about profit as it is calculated in an annual statement: If a business is structured as a holding company with fully-owned subsidiaries, how can the parent firm's profit be a bunch less than the group's profit shown on the consolidated income statement? I suppose it is bound to be a bit less due to the holding company's administrative expenses, but I can't figure out where else all the money goes.

Reply to
Stephen Wise
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What company are you looking at? If the holding company owns 100% of the subs then the net income (after intercompany transactions are eliminated) should add up to the total consolidated net income.

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Reply to
Steve

That does seem logical, doesn't it?

I have been looking at the 2005 annual statement for a Norwegian fish farming company named Cermaq. It is available in English at

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On p. 48 it shows a list of subsidiaries, all owned 100%. On p. 38 it shows group earnings for majority interest as NOK 658 million. On p. 67 it shows parent earnings of NOK 137 million, and "income from subsidiaries" of only NOK 5.7 million. So I would like to understand what happens to the rest of the group's earnings. I'm sure this is nothing unusual or improper, just my ignorance showing. (As you may gather, I'm not an accountant.)

Reply to
Stephen Wise

eliminated)

I did not look up the link and pdf document but "parent earnings" is NOT consolidated income. I don't know about Norwegian companies but in the US there would be a footnote showing all the individual sub's income, parent company income, intercompany eliminations income (loss) with all this adding up to 100% consolidated net income.

Reply to
Steve

All right, then what exactly determines the parent company's net income? Is it just at the discretion of management to decide how much of the subsidiaries' earnings it wants to formally appropriate in a given year, perhaps to minimize taxes?

Reply to
Stephen Wise

No, taxes has nothing to do with it. The parent company has other transactions along with 100% owned sub's income/loss. It is (usually) NOT the accounting equivalent of the total consolidated company net income but if the parent co. owned 100% subs and there were no other transactions, then the individual profit statements, including parent co. should add up to total. There are many complications to this but for US companies there is a reconciliation of this relationship.

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Reply to
Steve

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