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Valuation Methodologies
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> 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