redeemable vs non redeemable non controlling interest (4 questions)
1. Classification: am I right to say that the redeemable portion is temporary equity hence on the > statement of equity: the net income number that shows up is after subtracting the temporary equity portion? > balance sheet: only non-redeemable portion of non controlling interest shows up under... 1. Classification: am I right to say that the redeemable portion is temporary equity hence on the > statement of equity: the net income number that shows up is after subtracting the temporary equity portion? > balance sheet: only non-redeemable portion of non controlling interest shows up under shareholder's equity? where does the redeemable portion show up in balance sheet? 2. When calculating TEV: do you add the whole non controlling interest (both redeemable and non-redeemable)? 3. In the case of a non controlling stakeholder that holds a redeemable stake, can you explain how it flows through the financial statements in the case when he redeems? Say his stake is worth $10. If he redeems this over 5 year period say $2 per year, then in a. Year 0 - reclassify redeemable non controlling interest into liability: this $10 becomes amount owed to the holder under liabilities ($2 under account payable as it is payable in a year) whereas remaining $8 is under other long term liabilities (payable in future after 1 year lapsed). On cashflow statement, you have increase in payable of $2 so additional cash under CFO so net change is +2. no change in CFI and CFF. On BS you have on the current liability side +2, other long term liability +8, and under retained earnings -10 so no change in asset. Is this correct? b. Year 1 - you start expensing $2 (assume stays the same but this could have fluctuated year on year depending on the performance of the firm that minority shareholder has a stake in) P&L: -2 under interest expense or other expense so after tax of 40%, net income is -$1.2 CFS: under CFO, -1.2, and since payable is down 2 this year so net CFO cash is -3.2 ,under CFI and CFF - no change. Balance sheet: asset side: cash -3.2 and liability side 10-2=8, equity side =-1.2 (from net income), so asset side is -3.2 and liability+equity = 8-1.2 = 6.8 QUESTION: this is not balancing, what is wrong here? 4. what is the risk with a firm with a huge noncontrolling interest as part of the net income eg 50% of net income from from noncontrolling interest in general (whether there is redemption or not)? Read More

Minority Interest
Why is this thought of as Debt? Wouldn't it be more accurate to think about minority interest as another form of equity? They participate in ownership of the assets on the consolidated balance sheet, as well as the earnings on the consolidated income statement. It's more of an ownership, so they par... Why is this thought of as Debt? Wouldn't it be more accurate to think about minority interest as another form of equity? They participate in ownership of the assets on the consolidated balance sheet, as well as the earnings on the consolidated income statement. It's more of an ownership, so they participate in both the upside and downside, rather than debt which has a fixed/capped return. also everything aside, just did a quick google search. Isn't minority interest actually registered in the equity section of the balance sheet anyway? Read More

Corporate Valuation Methodologies: capital lease
Hi About the capital lease, the instructor mentioned in the lecture, his view of capital lease is not very positive, it shows more debt, less efficient for the asset turnover ratios, however, capitalized also means future depreciation, you can get the tax deduction for the capital lease, perhaps ... Hi About the capital lease, the instructor mentioned in the lecture, his view of capital lease is not very positive, it shows more debt, less efficient for the asset turnover ratios, however, capitalized also means future depreciation, you can get the tax deduction for the capital lease, perhaps certain companies just want to take advantages of the tax shield. Read More

Corporate Valuation: DCF valuation
Just a quick question,, is it fair to conclude that the DCF Valuation is the most important method and the most popular one used by firms? At least, as a Beginning point to the valuation process? Thanks, Noor

MI and DCF valuation
Hi, I have attended your advanced financial and merger modeling course. For minority interests (MI), can you please recap how it impacts the DCF valuation? Are these the correct adjustments/impact if my consolidated P&L and BS factors in MI already? 1. WACC is build up from ratio of debt and e... Hi, I have attended your advanced financial and merger modeling course. For minority interests (MI), can you please recap how it impacts the DCF valuation? Are these the correct adjustments/impact if my consolidated P&L and BS factors in MI already? 1. WACC is build up from ratio of debt and equity in the consolidated BS so it factors in the MI already 2. To calculate equity value from firm value, we substract the MI along with the net debt Any more adjustments required? On the CF statement, in brief, how does MI affect the CF? On the period for the DCF calculation, how do you determine whether it should be 5 or 10 years? How do you determine when the terminal value should kick in? What is the basis for imputing a terminal value? Are there adjustments in the terminal year which can be done to better justify the terminal value e.g. setting depreciation = capex to imply maintenance capex into perpetuity? Thank you. Read More