Minority interests

The minority interests line in a company's consolidated accounts shows amounts that are attributable to outside shareholders. These amounts ultimately belong to outside shreholders in subsidiaries, so they must be deducted for the consolidated accounts to show the real position and proitability of the group.

Minority interests in the P & L

Suppose a company makes a post-tax profit £200m from its own operations. It also has a 75% stake in a subsidiary that makes a post tax profit of £100m.

The consolidated P & L will show a fully consolidated post-tax profit of £300m (£200m from the company itself + £100m for the subsidiary).

Below this will appear a line that shows minority interests of £25m. This is the stake in the subsidiary not held by the company of 25% × £100m profit made by the subsidiary.

Finally, the profit attributable to shareholders will be £275m (£300m consolidated minus £25m attributable to minority interests).

Minority interests in the balance sheet

The balance sheet treatment of minority interests is somewhat different. It is not deducted from the assets (as liabilities are), but just disclosed by showing the value of minority interests in the second part of the balance sheet as a separate source of equity funding.

This means that you need to deduct the minority interests yourself if you are using net assets for valuation. This is easy to do, particularly as a number of other adjustments are likely to be needed anyway, but it is easy to overlook.

Minority interests and the cash flow statement

Minority interests are irrelevant to the cash flow statement. This means that if you are calculating a cash flow from the P & L, or you are reconciling the cash flow statement with the other accounting statements, you need to remember to add minority interests back.

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