What are Minority Interests?

Minority interests are a term that sometimes appear on the balance sheet or income statement of a company; to new investors it's not immediately clear from the accounts what this term actually refers to. The term minority interest is often used interchangeably with the term 'non-controlling interest'.

This exists when a company has a subsidiary, which it does not have a 100% holding in. A company owns a subsidiary when it has a majority interest in that company. For example, if 'Remote Plc' had a 58% interest in 'Control Plc', Control Plc would be classed as a subsidiary of Remote Plc. Whilst Remote Plc has a controlling interest, 42% of Control Plc is classed as a minority interest within Remote Plc's accounts.
The minority interest can therefore be defined as the percentage of a subsidiary that is not held by the parent company

Since it is easiest to show in an actual set of accounts, adjacent is an extract from the income statement section of the half-year accounts for Titon Holdings (LSE:TON).

As always, the generic rows are shown up to the profit after income tax line; this number totalled £0.457m for Titon in the six months up to March 2014.

Note now that Titon has 10.51m shares in issue. You can now notice that the profit after tax and earnings per share figures do not tally.

£0.457m / 10.51m = 4.35p, but we are given that earnings per share actually only stood at 2.39p.

That is because of non-controlling interests. These are profits made by the parent company, which are not actually due to the parent company (Titon). That is profit due to the minority holder of Titon's subsidiary; it must therefore be stripped out.

Now the numbers tally; if we just take the profit attributable to the "equity holders of the parent [i.e. shareholders]", then we arrive at the following calculation.

£0.252m / 10.51m = 2.39p. This tallies with the earnings per share figure given by the company. Therefore, be careful to check for the presence of 'non-controlling' or 'minority' interests on the income statement.

Minority interests are also visible within the equity component of a balance sheet, as per the example below for Quarto Group (LSE:QRT).

As per this example, it is usually shown as a separate component to the "equity attributable to equity owners of the parent". That value, combined with the minority/non-controlling interests should sum to the total equity number present.