How does LTG derive income from PNB when PNB hasn’t declared dividends?

Thank you to Javier for this great question. LT Group [LTG 9.60, up 0.1%] is the parent company of Philippine National Bank [PNB 18.86, up 1.4%], and Javier’s question essentially boils down to how PNB’s profitability can show up at the LTG level without PNB actually distributing its profits to LTG by way of dividends. I’m not an accountant, this is a massive generalization, and there are a lot of edge cases, but the answer is that the financial statements of subsidiary (PNB) companies are consolidated at the parent (LTG) company level. This means that all of the Current Assets listed in LTG’s consolidated balance sheet are really the values of the Current Assets of LTG itself and its subsidiaries like PNB and its other companies from other segments like distilled spirits, beverages, tobacco, and property development. This means that the ~P14 billion in Cash and Other Cash Items that PNB reported on its Q3/23 Quarterly report will show up in LTG’s Cash and Other Cash Items account (~P15.7 billion), even though that cash hasn’t been transferred from PNB’s bank accounts to LTG’s bank accounts by way of dividend or otherwise.

MB bottom-line: This explanation is just the tip of the iceberg and there are multiple lifetimes of professional nuance hulking just beneath the surface. The important thing to remember is that when you’re looking at a set of consolidated financial statements, you’re looking at the sum of everything at the parent level and the subsidiaries below. The financial statements of affiliate companies (where less than a controlling stake is owned) are not consolidated in this way, only subsidiary companies where the parent owns a majority interest. The financial statements of the parent are a high-level summary of everything that it controls.

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