Lesson 9 of 30
Purchase Method vs. Pooling of Interest Method
The following table illustrates some of the consolidated financial statement differences between the purchase method and pooling of interest method.
| Item | PURCHASE METHOD | POOLING OF INTERESTS METHOD |
|---|---|---|
| Book Value | Typically higher than pooling method. | Typically lower than purchase method, as no goodwill asset is created. |
| Earnings Trend | Typically lower than the pooling method because pre-acquisition income statements are not combined. | Typically higher than purchase method because income statements are combined retroactively. |
| Sales Trend | Typically distorts growth perception of the acquiring company, as much of its sales growth can be attributed to the acquisition. | Typically more accurate than the purchase method, as income statements are combined retroactively. |
| Earnings Per Share | Typically lower than the pooling method. | Typically higher than the purchase method, as the income statement is combined for the entire reporting period, rather than as of the acquisition date. |
| ROA & ROE | Typically lower. | Typically higher. |