A method of accounting for an investment in another company in which the book value of the investment reflects a share of the acquired firm's increases in retained earnings. Thus, if Firm A purchases 20% of Firm B's stock and Firm B earns $3 million after taxes during the next year, Firm A will increase the carrying value of its investment by 20% of $3 million, or $600,000. If Firm B pays half its earnings in dividends, Firm A will increase its investment by $300,000.
