← Business Metric: Financial (all topics)
Related-party transactions to revenue
What it is
Sales, purchases, loans and guarantees with promoter-linked entities, measured against total revenue. They are legitimate and disclosed, but they are not arm's-length by definition
The concern is whether value is being transferred out of the listed entity
Impact on industries
- Pricing is negotiated within a group rather than set by a market, so reported margins may not reflect competitive capability
- Loans and guarantees to promoter entities move cash out of the listed company for the benefit of shareholders who are not all shareholders
- Disclosure and audit committee approval requirements have tightened substantially, so the transactions are visible and challengeable
- Genuine operating logic often exists in group structures, so the size and the trend matter more than the existence