In a company that owns 70% of a subsidiary, what does Minority Interest represent in EV calculations?

In a company that owns 70% of a subsidiary, what does Minority Interest represent in EV calculations?

• A. The 30% non-controlling interest
• B. The 70% controlling interest
• C. The parent company's cash
• D. The entire subsidiary's equity

Answer: (A)

Minority Interest represents the portion of the subsidiary that the parent does not own. With a 70% stake, 30% is owned by other shareholders, so this 30% is the non-controlling interest. In enterprise value calculations, you include the value of that non-controlling portion because EV reflects the value of the entire subsidiary if it were 100% owned. In other words, EV adds the 30% of the subsidiary's equity that belongs to others, not the parent’s cash, nor the entire subsidiary’s equity.

Minority Interest represents the portion of the subsidiary that the parent does not own. With a 70% stake, 30% is owned by other shareholders, so this 30% is the non-controlling interest. In enterprise value calculations, you include the value of that non-controlling portion because EV reflects the value of the entire subsidiary if it were 100% owned. In other words, EV adds the 30% of the subsidiary's equity that belongs to others, not the parent’s cash, nor the entire subsidiary’s equity.