Income on Equity Law and Legal Definition
Income on Equity comprises (1) dividends and distributed branch profits, and (2) reinvested earnings and undistributed branch profits. It is generated from strategic investments in consolidated or unconsolidated affiliate companies, i.e., investments in which the investing company has significant influence over the operating and financial policies of the investee (the legal entity into which an investor has made an equity investment). These investments are entered on the company's balance sheets, and are thus accounted for under the equity method of accounting. Under this method, the company is legally obliged to record its proportionate share of income or loss resulting from such investments in its results for a given period.