Non-controlling interest
The share of a consolidated subsidiary's equity not owned by the parent, shown within group equity. Added in enterprise value, since consolidated EBITDA includes the subsidiary in full.
Where you will meet it
Non-controlling interest appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Explain how goodwill is accounted for and disclosed
“Goodwill arises only in a business combination: in the simple case of buying all of a company, it is the consideration paid less the fair value of the identifiable net assets acquired (with a non-controlling interest or a previously held stake, those are added to the consideration), so it captures what cannot be separately identified, such as expected synergies and an assembled workforce.”
- Work out EV multiples, explain what they mean and assess how useful EV/EBITDA is
“Enterprise value is the market value of the whole business: equity plus debt, preferred shares and non-controlling interests, less cash and short-term investments.”
- Set out how IFRS classifies, measures and requires disclosure of: (1) financial asset investments; (2) associates; (3) joint ventures; (4) business combinations; (5) special purpose entities and variable interest entities
“Control means consolidation under the acquisition method, with goodwill and a non-controlling interest, and control rather than legal form decides whether a structured entity is consolidated.”
- Set IFRS against US GAAP on how each classifies, measures and discloses financial asset investments, associates, joint ventures and business combinations, as well as special purpose entities and variable interest entities
“For business combinations, IFRS lets the acquirer measure the non-controlling interest at fair value (full goodwill) or at its share of identifiable net assets (partial goodwill), while US GAAP requires fair value, so full goodwill.”
See also
Practise it
Practise non-controlling interest until it is automatic: questions that explain every wrong option.
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