NCI Question
I'm a bit confused on what exactly Non controlling interest is.
Many sources such as Macabacus say it's when a company owns more than 50% of another company and must now record it on their financials.
Other sources, such as Investopedia claim that it's when a company owns less than 50% of another company...
I understand that we need to add NCI to EV to create a more apples to apples comparison as after a company owns a certain amount of another it records 100% of the company's earnings and must adjust for that.
So is NCI when a company owns more or less than 50% of another company?
Imagine Company A purchases a 80% stake in Company B. Company C retains a 20% stake in Company B. On Company A's financials, NCI represents the 20% stake held by Company C (assuming no other investments).
A company reports NCI when it owns greater than 50% of a company, and the NCI represents the residual minority stake not owned by the acquirer.
Thanks for this explanation. Way more clear now. Would company A report the NCI as a liability? Also, how does the income factor in? Isn't there something like you have to subtract the revenue earned by the NCI in the stockholders' equity section, or is that wrong?Does the income statement change at all?
NCI shows up on Company A's B/S under the Equity section. Net Income earned by NCI is subtracted from total NI, and the subtracted portion accrues to the NCI balance on the B/S.
Analyst 1 is correct - in general, when you have a source like Macabacus saying something differently than investopedia, always look to Macabacus. Investopedia is very hit or miss
The Investopedia page isn't wrong, per se, it's just less clear. The NCI in the above example represents a 20% stake (less than 50%), but the part that isn't intuitive from their explanation is that the NCI is recorded on Company A, and not Company C's, B/S as NCI.
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