Defining Parent Company
A parent company is one that owns over 50% of another company's voting shares, giving them influence over that company's operations.
Besides operating its own businesses, a parent company can also acquire other companies to support its main operations. These acquisitions can be from similar or different industries.
Understanding Parent Company
A parent company controls its subsidiaries by owning majority of their stock. It can manage these subsidiaries directly or indirectly, depending on its management strategy. It also has to record its subsidiaries in its financial statements and tax returns.
Parent companies can be created through acquisitions or spin-offs. Acquisitions involve buying a controlling interest in smaller companies for various reasons, like reducing competition or expanding operations. Spin-offs create independent companies by issuing new shares to the parent company's shareholders. This can be done to segregate underperforming units or optimize operations.
The financial performance of a parent company is tied to that of its subsidiaries. This information can be useful for traders in making investment decisions.