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Answering the Common FAQs about Minority Interests

Before assessing estate valuation in litigation matters, you might require addressing the issue of minority interests & business restructuring. But what exactly is the minority interest? Put simply, minority interest is the NCI or non-controlling interest.

It is a share of equity ownership in the subsidiary’s equity. It neither gets owned nor controlled by any parent company. A minority interest is one where the interest does not have control of a valued entity. So, the shareholding will be less than 50%.

In general, minority interest offers users important information while reading the financial statement. It helps them explore & make well-informed choices for investments.

The total controlling stake percentage determines the overall influence & voting rights of the minority interests over a decision-making process. If you want to learn further about minority interests, here is a rundown of the commonly asked questions:

#1 Is Minority Interest Important for Ratio Analysis?

The answer is yes. Any ratio considering capital structure has to take into account an implication of this kind of interest. To name some, they are the return on equity, debt-equity ratio, return on capital employed, and capital gearing ratio.

#2 How to Calculate Minority Interests?

Assessing minority interest valuation should get performed in a few steps. Firstly, find the subsidiary’s book value as it appears on the balance sheet. The net asset value is the total asset minus the intangible assets (goodwill and patents) & liabilities.

#3 Is Minority Interest A Liability Or An Asset?

Liability is the obligation of any company arising out of previous events, resulting in the outflow of resources. Some of the examples are employee dues, unpaid bills, and creditor balances. They enable the resources’ outflow in the future. Since no cash gets paid to outsiders on account of these interests, it can’t get treated as a liability.

Assets are the values of an enterprise and result in the receipt of cash or equivalents in the near future. Though the interest has value, a company does not have any control over it. It represents shareholders’ non-controlling interests. Thus, it’s neither a liability nor an asset.

So, these are the commonly asked questions about minority interests. If you want to measure estate tax valuation, you must learn these things beforehand.