Minority Interest on the Balance Sheet

Analyzing a Balance Sheet

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When you look at a balance sheet, one item that warrants a closer look is called minority interest. This section refers to the equity that minority shareholders hold in a company's subsidiaries. You'll often see this when looking at holding companies

In other words, it shows the minority stockholders' share of the assets and liabilities of a subsidiary. A subsidiary is one company controlled by another company through ownership of a majority of the voting stock. That owner is often called the parent. The parent must own 50% or more of the subsidiary's voting stock.

Reporting Minority Interest

Starting in 2008 and 2009, the Financial Accounting Standards Board (FASB) made a big change to how minority interest is shown on the balance sheet. Companies were then required to list it under the shareholders' equity section. Before, it was in the liabilities section. 

This major shift has an impact on annual reports and Form 10-K filings after this date. You'll need to look further down the balance sheet to the equity section to find the minority interest details. It also means you'll need to be aware of this change when looking at balance sheets in older annual reports. The minority interest section will appear as a type of debt in the liabilities section.

The old thinking about minority interest was that it showed a financial liability that was owed to the minority stockholders. The new thinking is that the minority stockholders aren't owed anything; they own their sliver of the company. For that reason, it makes sense to move it to the equity section. Some feel that the move is a better representation of economic reality.

How Minority Interest Works

This real example shows how minority interest works. Berkshire Hathaway (BH) is perhaps the most famous holding company in the U.S., if not the world. This investment vehicle of Warren Buffett has made minority interest a key weapon in its never-ending quest for strong acquisitions. 

Buffett's method: find an attractive business, often owned by a family or a small handful of people. Then, he would offer to buy a major ownership percentage of the stock. The majority stake is important; the current tax rules in the U.S. mean that the acquired business can be treated as a fully consolidated subsidiary. The parent holding company may not have to pay taxes on dividends from that subsidiary. 

BH then achieves a majority ownership stake in a target company's stock. Any minority stake that remains in the hands of the non-controlling stockholders has to be shown in their financial statements. That is where minority interest comes into play.

Minority Interest on the Balance Sheet

In 1983, Nebraska Furniture Mart (NFM) in Omaha, Nebraska, was the most successful home furnishings store in the U.S. Its gross annual sales were more than $100 million and NFM had no debt. After seeing how successful NFM was, fellow Omaha native Warren Buffett went to the owner, Rose Blumkin. He offered to buy the company from her.

The sale would allow Blumkin to remain in charge of the business she loved and keep holding a meaningful stake. She could also raise a large amount of cash for estate planning purposes. She offered to sell 90% of the privately held NFM stock to BH for $55 million.

This made NFM a partially-owned subsidiary of Berkshire. Subsidiaries are controlled by their parent companies. This means they can be carried on the parent's balance sheet. When BH bought its 90% stake in NFM, it was able to add NFM's assets and liabilities to its own balance sheet.


A company can combine the balance sheet of its subsidiary if it owns 50.1% or more. It can report the earnings if it owns 20% or more.

This caused a slight problem. BH could now include NFM's balance sheet with its own. But it didn't own all of NFM. While Rose Blumkin sold 90% of NFM, she still owned the other 10%. 

That means that 10% of the ​current assets, the inventory, and the property, plant, and equipment, and other assets belonged to her.

To adjust BH's balance sheet to reflect this, they had to calculate Rose's 10% share. Then, they had to report it under the minority interest section of their balance sheet. This was before the 2008 and 2009 rule changes. Back then, minority interest was shown as a liability (debt). 

Let's say you take a look at BH's balance sheet today. Among its many minority interests shown under the shareholder equity section are the shares of NFM owned by Rose Blumkin's heirs. These days, BH owns 80% of NFM; the Blumkin family owns 20%. This was after the Blumkins ended up repurchasing 10% of NFM. That was added on top of the 10% they held on to during the acquisition.

Finding Minority Interest for Subsidiaries

When looking at the minority interest section of a firm's balance sheet, the management team may not offer details on the specific firms in which minority interest is held. 

For that, you will need to look at the legal structure of the parent business. Find out exactly how much it owns of each subsidiary. Then do some calculations to allocate the assets and liabilities based on ownership percentages.