Public comany A mkt cap is $100mm, A has $10mm cash, $20mm debt; it owns 60% of company B($10mm mkt cap), it owns 10% of company C($10mm mkt cap); what is company A's EV?
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EV= EqV+Debt+Non-Controlling Interest- Cash.
EqV=100, debt=20, cash=10, NCI= 4. EV therefore equals $114 mm. Company A only has an NCI in company B since it owns more than 50% stake there. It has a minority investment in Company C, which should be implicitly accounted for in Company A's EqV. I guess if it was a short-term investment in company C that had nothing to do with its operations, then you may subtract that when moving from EqV to EV. However, we don't have any information about that, so just assuming it's part of the firm's core operations.
Let me know if I made any mistakes
Agree with this - I would subtract the $1m of minority investment in company C (EV = $113M), usually these questions are getting at the apples/apples idea for EV/EBIT or other EV multiples. You would consolidate the the Income Statement for Company B so you need to represent the full value of the operating assets in the EV calculation. You would not consolidate the Income Statement for Company C, so you should remove it from EV. You consolidate based on if ownership is > or 50%.
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The guy below is correct, has nothing to do with core vs. non-core. The denominator (whether revenue, EBITDA or EBIT) does not include any benefit from your ownership of the 10% stake, but the numerator definitely does include the benefit of that stake. You have to subtract the $1m from EV either way.
The only situation you wouldn't do that is (extremely rare) if the company has a Non-GAAP adjustment that brings the proportionately consolidated share of Company C's P&L up above the line so that it is included in your denominators. You sometimes see this in infrastructure companies or older industrials companies where equity investments are a big enough part of their overall business.
Gotcha thanks for the clarification. Not sure why you got MS it wasn't me.
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