Minority Interest

Minority interest is the portion of a subsidiary that does not belong to the parent company. If a group does not fully own a subsidiary, the remaining part belongs to other shareholders. In the consolidated balance sheet, this outside share is shown separately. The background lies in consolidation technique: once one company controls another, the latter's assets, liabilities, revenue and expenses are taken into the consolidated accounts in full, regardless of whether the holding is 60 or 100 percent. So that the balance sheet remains accurate, the share of equity not attributable to the parent is presented separately within equity, and the corresponding share of profit is separated in the income statement.

An important consequence follows for valuation: because group revenue and EBITDA include the subsidiary in full while the group owns only part of it economically, minority interests must be deducted in moving from enterprise value to equity value, much like financial liabilities. Omitting this step systematically overstates equity value. Conversely, non-controlled investments are generally not fully consolidated. Where their earnings contributions are excluded from the EBITDA used, their value must be considered separately in the bridge.

Under the equity method, for example, the share of an investee's profit does appear in consolidated earnings, although its revenue and individual expenses are not taken into the accounts in full. A valuation based on group EBITDA must therefore establish which earnings contributions the metric includes, so that an investment is neither omitted nor counted twice. It should also be checked whether the subsidiary's minority shareholders hold put rights, because such a claim can create substantial capital requirements after the acquisition.