What are minority interests?

What are minority interests? How to handle the profits of subsidiaries?

Minority interests, known as Minority Interests or Non-controlling Interests in English, refer to the equity corresponding to the portion of equity that is not fully held by a parent company in its subsidiaries in the consolidated financial statements.

Minority interests reflect that portion of a subsidiary's net assets and net profits that are attributable to other shareholders (i.e., minority shareholders). It should be noted that if the parent company owns 100% of the subsidiary, there is no minority interest. Taking Intel Inc.

as an example, its financial report on December 30, 2023 listed three minority shareholder interests: Arizona Fab LLC, Mobileye, and IMS Nanofabrication, as shown in the figure below: Among them, Arizona Fab LLC is a joint venture between Intel and Brookfield Asset Management.

Responsible for the construction and operation of two semiconductor manufacturing facilities in Arizona. The total investment in the project is approximately US$29.4 billion, of which Intel holds a 51% stake and Brookfield holds a 49% stake. Therefore, Brookfield's 49% stake can be considered a minority interest in Intel.

Founded in 1999, Mobileye is an Israeli company focused on developing autonomous driving and driver assistance system technologies. Intel acquired it for US$15.3 billion in 2017 and listed part of its equity for financing in 2022 under the code MBLY.

But Intel still holds 87.7% of the shares, so the other 13.3% of Mobileye's shares can be considered Intel's minority interests. IMS Nanofabrication is a company specializing in electron beam lithography systems.

Intel fully acquired it in 2015, then sold 20% of its shares to Bain Capital in March 2023, and sold approximately 10% of its shares to TSMC in June of the same year. Currently, Intel still holds approximately 70% of IMS Nanofabrication’s shares.

Therefore, the other 30% of IMS Nanofabrication's equity can be considered Intel's minority shareholders' interests. How are minority shareholders' interests shown in company financial reports?

Minority interests reflect the portion of a subsidiary's net assets and profits that are not held by the parent company and are presented separately in the consolidated financial statements to show minority shareholders' interests in the subsidiary.

For the income statement The subsidiary's income and expenses are combined with the income and expenses of the parent company. Items such as total revenue and operating profit in the consolidated income statement include all revenues and expenses of the subsidiaries and the parent company.

The calculation process is as follows: Operating income: includes all income of the parent company and subsidiaries. Cost of sales: includes all costs of sales of the parent company and subsidiaries. Operating Expenses: Includes all operating expenses of the parent company and subsidiaries.

Operating profit: reflects the operating profit of the entire group, including parent company and subsidiaries. Net profit: Net profit calculated as tax and interest expense, including the combined results of the parent company and subsidiaries.

The net profit at this time is called "net profit from continuing operations", which indicates the net profit obtained by the parent company and its subsidiaries through continuing operations. Profit and loss of minority shareholders: presented separately below net profit, indicating the portion of net profit attributable to minority shareholders.

Net profit attributable to shareholders of the parent company: After deducting the profits and losses of minority shareholders, the remainder belongs to the shareholders of the parent company.

Taking Intel's December 2023 annual report as an example, you can find net profit (net profit from continuing operations), minority shareholders' profits and losses, and net profit attributable to the parent company in the income statement. For the balance sheet

Minority shareholders' equity is shown as a separate item in the shareholders' equity section of the consolidated balance sheet, reflecting the equity attributable to minority shareholders in the net assets of the subsidiary that are not fully held by the parent company.

In the balance sheet, total assets and total liabilities include all assets and liabilities of the parent company and its subsidiaries.

Taking Intel's December 2023 balance sheet as an example, you can find: Total Intel Stockholders’ equity attributable to the parent company (Intel) Non-controlling interestsMinority shareholders' interests Total stockholders’ equity Stockholders’ Equity = Total Assets – Total Liabilities For cash flow statement Minority interests themselves will not appear

directly in the main statement section of the cash flow statement, but cash flow activities related to minority shareholders (such as dividend payments, capital changes) may indirectly affect certain items in the cash flow statement. More investment guides What are Bollinger Bands and how do I use them? What is Moving Average (MA)?

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Full article: https://kgwv.com/encyclopedia/fundamental/non-controlling-interests/

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