We previously covered how leveraged Starhub is based on return to equity and debt to equity metrics. After our post, Starhub’s investor relations team contacted us to tell us that because of certain merger accounting implications, we should instead be looking at the company level equity rather than the group level equity. This is seems a tad peculiar and is what we will be discussing today – how merger accounting can distort group level analysis.

How consolidation works

We start with how basic consolidation works. Consolidation occurs when a company has at least 1 subsidiary.  In order for shareholders to get a holistic picture of all the assets and earnings accrued to him, the accounts of the subsidiary are consolidated with the company to form a group level figure. Assuming it’s a wholly-owned subsidiary, the accounts at the Group level is a simple summation of the Company’s and the subsidiary’s ......