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Captures the equity stake in subsidiaries held by external shareholders, exposing the portion of consolidated net assets not fully owned by the parent.
Minority interest represents the portion of a subsidiary's equity not owned by the parent company. It appears on the consolidated balance sheet.
Minority interest, also called non-controlling interest, represents the portion of a subsidiary's net income attributable to shareholders other than the parent company. When a company owns more than 50% but less than 100% of a subsidiary, it consolidates 100% of the subsidiary's results but must allocate the portion belonging to outside shareholders. This adjustment ensures net income reflects only the parent's ownership share.
How minority interest works:
Parent owns 80% of Subsidiary Subsidiary Net Income: $100 million Minority Interest (20%): $20 million Parent's share: $80 million
Income statement presentation:
- Before minority interest: Net income includes 100% of subsidiary earnings
- Minority interest deduction: Removes the portion belonging to outside shareholders
- Net income to parent: Final figure attributable to parent shareholders
Balance sheet component:
Minority interest also appears on the balance sheet within equity, representing outside shareholders' claim on subsidiary net assets.
Why minority interest matters:
- True ownership: Shows earnings actually attributable to parent shareholders
- EPS calculation: Net income available for EPS excludes minority interest
- Valuation accuracy: Affects enterprise value calculations
- Corporate structure insight: Indicates partially-owned subsidiaries exist
Analysing minority interest:
- Materiality: How significant relative to total net income?
- Trend: Growing minority interest may indicate acquisitions of partial stakes
- Subsidiary performance: Indicates profitability of partially-owned units
- Strategic plans: Company may plan to acquire remaining stakes
Valuation considerations:
- Enterprise value: Some add minority interest to EV as it represents claims on consolidated assets
- Earnings multiple: Use net income attributable to parent for P/E
- Sum-of-parts: Value subsidiaries separately when minority interest is material
For most companies, minority interest is a relatively small line item. However, for conglomerates or companies with significant joint ventures and partial subsidiary ownership, understanding minority interest is essential for accurate profitability and valuation analysis.