Investment Dictionary
Minority Interest
Minority interest (non-controlling interest) is a part of net income or of an equity that does not belong to the shareholders of the main group. Basically there are two types of the minority interest:
- Minority interest in income statement shows what part of the group’s net profit belongs to the minority shareholders of the subsidiaries. For example, the parent company ‘Main Holding’ earned stand alone $200k of net profit during the period while its subsidiary ‘Foreign Subsidiary’ earned $100k, and Main Holding owns only 70% of the mentioned subsidiary, then the ‘net profit attributable to group’s shareholders’ should make $270k while the rest $30k should be allocated as ‘net profit attributable to minority interest’. And if we are calculating price to earnings ratio, we should take only ‘net profit attributable to group’s shareholders’. But the net profit margin should be calculated using total net income.
- Minority interest in balance sheet shows what part of the group’s book value (equity) belongs to the minority shareholders of the subsidiaries. For example, the stand alone equity of the parent company ‘Main Holding’ is $300k while the equity of its subsidiary ‘Foreign Subsidiary’ is equal to $100k, and Main Holding owns only 70% of the subsidiary, then ‘equity attributable to group’s shareholders’ should be at $370k while the rest $30k should be allocated as ‘equity attributable to minority interest’. Minority interest from balance sheet usually is added to enterprise value. However, if company’s price to book ratio is far from one, then would be more accurate to find the market value of minority interest for such appliance.
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