Minority Interest

Minority Interest represents the portion of a subsidiary company’s equity that is not owned by the parent company.

We add Minority Interest to Equity Value to determine Enterprise Value to reflect the full value of the subsidiary that is consolidated into the parent company’s financial statements.

Example

Let’s say Sunny Blooms is a parent company that owns 80% of Rose Delight.

Sunny Blooms Inc. (Parent Company):

• Market Capitalization (Equity Value): $1,200M
• Total Debt: $400M
• Cash: $150M

Rose Delight Ltd. (Subsidiary):

• Total Equity (Net Assets): $100M
• Minority Interest (20% of $100M): $20M

Since Sunny Blooms holds a majority stake of Rose Delight, 100% of Rose Delight’s financial performance will show up on Sunny Blooms’ income statement. Meaning that it is already baked into metrics like EBITDA and Revenue.

But, we want to calculate Sunny Bloom’s total Enterprise Value to run EV / EBITDA and EV / Revenue multiples.

You can’t do this only using Sunny Bloom’s Equity Value, Debt and Cash since Rose Delight’s EBITDA and Revenue are factored into this. Since Sunny Bloom owns 80%, 80% of Rose Delight’s Net Assets are already being factored into Sunny Bloom’s Equity Value / Debt / Cash.

If we want to calculate the entire value of Sunny Bloom, we must incorporate Rose Delight’s minority interest so 100% of Rose Delight is being incorporated.

So the formula for Sunny Bloom’s Enterprise Value in this situation would be:

EV = 1,200 + 400 - 150 + 20 (minority interest) = $1,470

💡 You won’t need to know how to do the math and probably won’t even be asked about why we incorporate Minority Interest into Equity Value. But, it is helpful to at least have a high-level understanding if asked.