Minority Interest (Non-controlling Interests)

Where non-controlling interests appear in the reports

Under IFRS 10, a parent that controls a subsidiary consolidates it fully, line by line, whatever its ownership share. The minority’s share is then shown separately:

• Income statement: below net income, the profit is split into “attributable to owners of the parent” and “attributable to non-controlling interests”. The same split is made for comprehensive income.
• Balance sheet: equity is split into equity attributable to owners of the parent and non-controlling interests.
• Cash flow statement: dividends paid to minority shareholders of subsidiaries are shown separately from dividends to the parent’s own shareholders.

An associated company, where the group typically owns 20–50% and has significant influence but no control, is not consolidated. Only the group’s share of its result is booked, on one line, so no non-controlling interest arises.

Why it matters for investors

• Earnings per share. EPS is calculated from net income attributable to owners of the parent, not from total net income. The same applies to the return on equity and to the payout ratio.
• Enterprise value. Because revenue, EBITDA and operating profit include 100% of every subsidiary, the minority shareholders’ claim must be added to enterprise value when calculating EV/EBITDA or EV/EBIT. Otherwise the multiple looks too low. See enterprise value.
• Dividends from subsidiaries. Cash paid to minority shareholders of subsidiaries leaves the group and is not available to the parent’s own shareholders.
• Size varies. In most Nordic groups the minority share is small, often well below 5% of net income, as the table on this page shows. It becomes significant in groups with large, partly owned subsidiaries or joint ventures that the group controls.

When the minority share changes

Buying out minority shareholders, or selling a minority stake while keeping control, does not change the income statement. Under IFRS 10 it is treated as a transaction between owners and booked directly in equity. A company that sells 30% of a subsidiary at a good price therefore shows no gain in its income statement, but its equity attributable to owners rises.

When control is gained or lost, the treatment changes. In an acquisition the buyer measures the non-controlling interest either at fair value or at its share of the identifiable net assets, which affects the amount of goodwill. When control is lost, the subsidiary is deconsolidated and any remaining stake is remeasured at fair value, which can produce a gain or loss.

The minority share of net income can also be negative, when a partly owned subsidiary makes a loss.

Valuing a company with large minority interests

When non-controlling interests are small, as in most Nordic groups, deducting their share of profit is enough. When they are large, a closer look is needed:

• Book value or market value. The balance sheet shows the minority’s share of the subsidiary’s book equity, which can be far below its market value. If the subsidiary is listed, use its market capitalisation times the minority share in the enterprise value calculation.
• Sum of the parts. For groups with several partly owned subsidiaries, valuing each part separately and taking the group’s share of each often gives a clearer picture than group-level multiples.
• Cash access. The group can use a subsidiary’s cash only together with its minority shareholders, for example through dividends paid to all owners.