# How to Calculate Equity Ownership of Foreign Subsidiaries

by Bryan Keythman

A foreign subsidiary is a company incorporated in another country of which a parent company in the United States owns more than 50 percent. The number of shares of the subsidiary’s total shares outstanding that the parent company owns determines the parent company’s percentage ownership in the foreign subsidiary. This percentage determines how much of the subsidiary’s stockholders’ equity the parent owns. Stockholders’ equity is the accounting value of stockholders’ stake in the company. A greater percentage means the parent company is entitled to a greater percentage of the company’s equity and income.

1. Obtain a parent company’s 10-K annual report from either the investor relations section of its website or from the U.S. Securities and Exchange Commission’s EDGAR online database.

2. Find in the annual report the number of shares the parent company owns of its foreign subsidiary and the total number of shares outstanding of the foreign subsidiary, which is the total number of shares that all investors currently own. For example, assume the foreign subsidiary has 1 million shares outstanding, of which the parent company owns 600,000.

3. Divide the number of shares that the parent company owns by the number of shares outstanding to determine the percentage that the parent company owns of the foreign subsidiary’s equity. In this example, divide 600,000 by 1 million to get 0.6. This means the parent company owns 60 percent of the foreign subsidiary’s equity.

4. Find the amount of the foreign subsidiary’s total stockholders’ equity, listed on its balance sheet, and the currency in which it is listed. You can obtain the subsidiary’s balance sheet from its annual report, which you can get from the investor relations section of its website. In this example, assume the foreign subsidiary’s total stockholders’ equity is 10 million Hong Kong dollars.

5. Visit any financial website and find the exchange rate between the currency of the subsidiary’s balance sheet and U.S. dollars. Multiply the exchange rate by the subsidiary’s total stockholders’ equity to determine the subsidiary’s total stockholders’ equity in U.S. dollars. In this example, if the exchange rate is 0.13 U.S. dollars per Hong Kong dollar, multiply 10 million Hong Kong dollars by 0.13 to get total stockholders’ equity of \$1.3 million.

6. Multiply the percentage of the parent company’s ownership in the foreign subsidiary by the subsidiary’s total stockholders’ equity in U.S. dollars to calculate the parent’s equity ownership in the foreign subsidiary. Continuing with the example, multiply 60 percent, or 0.6, by \$1.3 million to get a \$780,000 equity ownership in the foreign subsidiary.

#### References

• Multinational Corporations and Foreign Direct Investment -- Avoiding Simplicity, Embracing Complexity; Stephen D. Cohen
• Accounting -- Concepts and Applications, 10th Edition; W. Steve Albrecht et al.
• Wellesley College: Exchange Rate Basics