What is the Minority Interest of a Company?

Minority Interest: TL;DR

Minority interest, also known as 'non-controlling interest', represents the portion of a subsidiary company's equity that is not owned by the parent company. It is the share of profit and loss attributed to shareholders who own less than 50% of a company's equity.

Minority Interest = Subsidiary’s Net Income × Minority Shareholders’ Percentage Ownership

In-Depth Understanding

When a company owns more than 50% but less than 100% of another company, the purchasing company is the majority or parent company, and the company purchased is a subsidiary. The portion of the subsidiary that the parent company doesn't own is referred to as the minority interest.

Minority interest is recorded on the consolidated balance sheet of the parent company, reflecting the portion of the subsidiary's net assets that the parent company does not own. It is also included in the consolidated income statement, where it reduces the net income attributable to the parent.

Minority interest is an essential concept in mergers and acquisitions, as it impacts the valuation of a company. It indicates that while the parent company has control over the subsidiary, there are still other stakeholders whose interests must be considered.

Real-world Examples

A Telecommunication Company - AT&T Inc.

AT&T Inc., an American multinational conglomerate, has minority interests in several companies. The minority shareholders of these subsidiary companies receive a portion of the net income, which is reported under the 'minority interest' line in AT&T's consolidated income statement.

An Automobile Company - Ford Motor Co.

Ford Motor Co. holds a majority stake in many smaller companies worldwide. The shares of these companies that Ford does not own represents the minority interest. This is reported in Ford's financial statements, showing the profits attributable to those minority shareholders.

A Media and Entertainment Company - Walt Disney Co.

The Walt Disney Co. has acquired numerous companies over the years, often retaining minority shareholders. The earnings attributable to these minority shareholders are reflected as minority interest in Disney's consolidated income statement, reducing the total net income attributable to Disney.