how to calculate the minority interest in holding company? what are the methods in that?

Answer 1

I hope you mean valuation of Minority Interest:

Methods for Valuing Minority Interests


Top Down: Proportion of the Enterprise Value Less Discount


1. Estimate the value of the whole enterprise's equity.

2. Compute the minority owner's pro rata ownership.

3. Estimate how much you should discount own's ownership due to minority interest and lack of marketability, if at all. (Note that if both of these discounts apply, they should be used multiplicatively, not additively. For example, if there is a 40% discount for minority interest and 30% discount for lack of marketability, then the total discount should be 1 - ((1 - 0.3) * (1 - 0.4)) = 0.58 = 58%.


Horizontal: Direct Comparison with Sales of Other Minority Interests


By comparing a company with other minority interests, you can avoid valuing the company itself. Instead, if the company was once publicly traded or if you can find a similar company that was publicly traded, you should update the fundamentals of the company with which you are working and then apply a marketablity discount. If you can compare the company with another very similar company, then it may not be necessary to apply any discounts. Unfortunately, it is difficult to find data on closely held stocks. Note that when valuing interests, actual dividends should be used as opposed to the ability to pay dividends to value companies, since the minority interest cannot force the payment of dividends. Furthermore, earnings-related should be used more than asset-related approaches when valuing minority interests.


The Bottom-up Method


1. Project both the timing and amounts of future distributions. 2. Project the expected proceeds from the sale of the interest at the end of the investment and the time at which the investment is sold. 3. Discount the above values to determine the present value of the future cash flows and sum them.

Instead (and perhaps equivalently), one can cut out step 2 and then project cash flows into perpetuity.


Market Evidence on Control Premiums and Minority Interest Discounts


Using data from Mergerstat Review, the authors found that control premiums are higher when P/Es are low and lower when P/Es are high. Using data from Houlihan Lokey Howard & Zukin, the authors found that premiums ran a bit higher than what they found in the Mergerstat data.


A study found greater discounts from NAV for real estate companies over REITs. The study also found that discounts are greater when revenues, earnings, or dividend payouts are lower and when unrealized capital gains are higher. A study found that the average discount in limited partnerships was 38% from a combination of the minority discount and the lack of marketability. Another study found a median discount of 35% for real estate minority interests



However you simply mean minority interest stake only then:



Minority Interest

When you look at a balance sheet, you will see an entry called "Minority Interest". This refers to the equity of the minority shareholders in a company's subsidiaries. An example will help clarify.

In 1983, Nebraska Furniture Mart was the most successful home furnishings store in the United States. It's gross annual sales exceeded $88.6 million, and the company had no debt. At the time, Warren Buffett, the CEO of Berkshire Hathaway, was searching for great businesses to acquire. After noticing how successful the furniture business appeared to be, he approach the owner, Rose Blumpkin, and offered to buy the company.

Almost immediately, Rose offered to sell 90% of Nebraska Furniture Mart to Berkshire for $55 million. The next day, Buffett walked into the store and handed her a check. This made NFM a partially-owned subsidiary of Berkshire. (A subsidiary is a company controlled by another company through ownership of at least a majority of the voting stock.) Since subsidiaries are controlled by their parent companies, accounting rules allow for them to be carried on the parent company's balance sheet1. When Berkshire bought its 90% stake in Furniture Mart, it was able to add the assets of the furniture giant to its own balance sheet.

This presents a problem. Berkshire can now add the assets of Nebraska Furniture Mart to its balance sheet, but technically, it doesn't own them all. Remember, Rose Blumpkin only sold 90% of her company - she kept the other 10%. Berkshire will somehow have to show that some of the assets on its balance sheet belong to Rose, who has a minority interest in NFM. To do this, it will calculate the value of Rose's stake in the subsidiary and put it under a liability account called "Minority Interest". These are the assets Berkshire "owes" Rose.

A company may have several minority partners in many subsidiaries. The minority interest of all of these partners is added together and placed on the balance sheet.

Answer 2

DUDE JUST ADD EVERY THING UP