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Manufacturing enterprises (such as Ford Motor Company) often establish captive financial subsidiaries to promote sales. In financial statements, the interest income and related expenses of this financial segment are presented separately. This article analyzes whether, when calculating gross margin, the sales and expenses of the financial subsidiary should be consolidated with business segments like automotive, or whether gross margin should be calculated based solely on core products (such as automotive sales and services), with the net interest income of the financial subsidiary treated as non-operating income or as an interest income/expense item.
Manufacturing Companies and Auto Companies like Ford Motors have captive finance subsidiary to finance their customers and dealers to enhance sales. In the Financial Statements, sales (interest earned and accruing on finance receivables) and expenses ( overheads and interest on debt) of such finance segments / subsidiaries are reported. Should sales and expenses of such finance segment or subsidiary be included with other segments like auto, service segments while analyzing gross margin ratio or should gross margin be analyzed only from the main products like cars sold and services provided by the manufacturing company AND net interest earned by the finance subsidiary can be analyzed as a be part of either operating income or taken below the income statement to the interest expense / income line item for the finance segment / subsidiary.