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Equity-method investments

How a company records an investment when it can influence, but does not control, another business, with Coca-Cola's bottling stakes as an example.

The short answer

The equity method is how a company accounts for an investment when it can exercise significant influence over another business, typically at an ownership interest of around 20% to 50%, though influence, not a fixed percentage, is the test. The investor does not consolidate the other company's individual assets and revenue line by line. Instead it records a single investment asset, and picks up its share of the investee's earnings or losses as a line on the income statement.

How the equity method works

The investment starts on the balance sheet at cost and is then adjusted for the investor's share of the investee's earnings or losses, and reduced by dividends received from the investee.
The investor's share of earnings appears as a single line, often called equity income or income from equity-method investees, not as a slice of each of the investee's revenue and expense lines.
If influence is lost, or the interest is sold, the method stops. If the investor gains control, typically more than 50%, the investee is consolidated instead, and the other owners' share is noncontrolling interest.

Significant influence can exist below 20% in some cases, and can be absent above 20% in others, depending on voting rights and the investor's role. The 10-K's accounting-policies note states how the company applies the test. Segment reporting sometimes shows equity income as part of a segment's results, and impairments can apply to an equity-method investment if it is other-than-temporarily impaired.

An example: Coca-Cola's bottlers

Coca-Cola's 2025 10-K describes a long-standing use of the method. The company sells concentrates and syrups to bottling partners, some of which it also owns a stake in. When that equity investment provides the ability to exercise significant influence over the investee bottler's operating and financial policies, Coca-Cola accounts for the investment under the equity method. When it sells a consolidated bottling operation to an independent bottling partner in which it has an equity-method investment, the 10-K says the company continues to participate in the bottler's results of operations through its share of the equity-method investee's earnings or losses.

That structure is specific to a bottling system, but the accounting idea is general: influence without control, a single investment line, and a share of earnings rather than line-by-line consolidation.

What to watch in the 10-K

The notes usually list significant equity-method investees, the ownership percentage, and the carrying amount of the investments. A large equity-income line can move net income even when the company's own revenue is quiet, which is why it is worth separating from operating income. Operating income vs. net income is the place to see where that line typically sits.

Common questions

What is the equity method?

The accounting for an investment when the investor can exercise significant influence over the investee. The investor records an investment asset and its share of the investee's earnings or losses, rather than consolidating the investee line by line.

When is the equity method used?

Typically when the investor has significant influence, often at an ownership interest of about 20% to 50%. Influence, not a fixed percentage, is the test.

How is this different from consolidation?

A controlled subsidiary, usually more than 50% owned, is consolidated: its assets, liabilities, revenue and expenses are included line by line. Under the equity method only a single investment and a share of earnings are recorded.

Where does equity income appear?

As a line on the income statement, and as a change in the investment asset on the balance sheet. Dividends from the investee reduce the investment, they do not go through as revenue.

Can an equity-method investment be written down?

Yes. If the decline is other than temporary, the investor records an impairment of the investment.

Disclosures

Editor holdings: The editor holds no position in any company named on this page. As of Nov 11, 2026.
Compensation: Nobody paid for this page. No affiliate links on this page.
Sources: Each company's own SEC filings, linked next to each number.
Last updated: Nov 10, 2026

General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.

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