Minority interest is an accounting concept that refers to a situation when a parent company owns over 50% of another firm. Due to the fact that the parent company has majority ownership of the subsidiary, it includes the assets, income, liabilities etc of the subsidiary in its balance sheet. However, if it does not own 100% of the subsidiary then it does not actually have claim to 100% of the financial performance, and whatever percentage it does NOT own must be subtracted as a liability.
Minority interest is an important factor in Enterprise Value. If the company being valued has majority ownership in another company, whatever percentage it does NOT own must be added on to Equity Value because the parent company will not have all of the claim on assets, income etc of the subsidiary.
- Balance Sheet (BS)
- Equity Value
- Enterprise Value (EV)
- Generally Accepted Accounting Principles (GAAP)