Minority Interest

What Is a Minority Interest?

A minority interest is the share of a subsidiary's equity owned by investors other than the parent company. When one company holds a controlling interest in another, usually by owning more than half of its voting shares, it generally must consolidate that company. Consolidation means combining the subsidiary's assets, liabilities, revenues and expenses into the parent's financial statements, even if the parent owns less than 100 percent. The slice held by outside owners is the minority interest. Under US accounting rules it is now usually called a noncontrolling interest, and international standards treat it in a similar way.

How It Is Reported

Because the parent consolidates the whole subsidiary, the minority interest needs its own line to show that part of the business belongs to someone else. On the balance sheet, it appears within the equity section, separate from the shareholders' equity of the parent company. On the income statement, the portion of the subsidiary's net income belonging to minority owners is deducted, so the final figure, often labeled net income attributable to the parent, reflects only what the parent's shareholders own.

For example, suppose a hypothetical Company A owns 80 percent of Company B, and Company B earns $10 million in a year. Company A's consolidated income statement includes the full $10 million at first. The remaining 20 percent, or $2 million, is attributed to the minority interest, leaving $8 million attributable to Company A's shareholders.

Why It Matters to Investors

Minority interest matters because consolidated figures can make a parent company look as if it owns every dollar of profit and every asset of its subsidiaries. The minority interest line shows how much of the group's value belongs to outside owners. Investors comparing companies often look at net income attributable to the parent rather than total consolidated net income, and they may consider the minority share when judging what a parent's shares are worth. The balance sheet records the minority interest at book value, which can differ from what the stake would fetch if sold, so it is a starting point for analysis rather than a market value.