Thank you for your explanation, it is great! I got only one question left: why in calculating EBITDA we take NI as 60, instead of 56 as we discussed that more accurate NI is NI to parent?
Thank you for the video on MI, there is one question - why did we deduct 20 only from cash in combined balance sheet, since 40 was the purchase price as per M.cap for additional 40% stake
Great content as always I have a question related to the dividend received from partially owned company, is dividend income recognized in the income statement of the parent? If not, can you explain why is that? Thanks
No. It's counted as a cash inflow on the Cash Flow Statement. Common Dividends are not shown on the Income Statement, only Preferred Dividends, because Net Income to Common at the bottom of the IS is supposed to represent the profit available to common shareholders. If you subtract Common Dividends on the IS, then the number at the bottom no longer represents what's available to the common shareholders.
@@financialmodeling Thanks a lot for your response. I understand that dividend paid out by parent company to its common shareholders should not be included in IS, but what about the dividend paid out by a subsidiary to the parent company? Should it be counted as "other income" on the IS of the parent company?
@@GandalfthewhiteNick No. That treatment would apply only if the Sub Co is treated as a normal "investment" (stocks/bonds etc.) rather than an equity investment where the Parent has some amount of influence/control.
Pretty succinct presentation. Quick question. How do you go about when the holding company acquired the balance of the minority interest. Example: Hold. Co acquired 80% of the equity in the sub. in 2020. Goodwill has been recorded along with the NCI in the consolidated FS. However, Hold. Co acquired the balance of 20% of NCI in 2021. What are your thoughts on accounting? Do we need to re-work the Purchase price allocation which was initially made during the 80% acquisition including the additional Purchase Consideration paid to acquire 20%, assuming 100% share holding ownership and changing the already existing Goodwill value?
PPA is always based on 100% of the other company's Equity Purchase Price for any >= 50% deal, so no. All that happens is the NCI goes away when going from 80% to 100%, Goodwill stays the same, Cash/Debt/Equity change based on the deal funding, and you use a Gain or Loss to plug the gap.
I'm not really sure what you're referring to because we don't deduct the equity investment. Goodwill is based on the Equity Purchase Price for 100% of the Target minus the Target's Common Equity + Target's Existing Goodwill (since it's written down in the deal).
You should use the Net Income line at the very bottom of the IS, after the deduction for NCI Net Income and any other deductions/additions/adjustments.
For all the files and resources for this video, please see:
www.mergersandinquisitions.com/noncontrolling-interests/
Nicely summarised 👍
Thanks for watching!
Great tutorial
Thanks for watching!
Thank you for your explanation, it is great! I got only one question left: why in calculating EBITDA we take NI as 60, instead of 56 as we discussed that more accurate NI is NI to parent?
You never use the Net Income figure to calculate EBITDA. It's always based on 100% Consolidated Operating Income + 100% Consolidated D&A.
Thank you for the video on MI, there is one question - why did we deduct 20 only from cash in combined balance sheet, since 40 was the purchase price as per M.cap for additional 40% stake
Thanks. Because the deal is 50% cash and 50% debt, so only $20 of cash is used to fund the purchase.
Thanks for clarification!
Great content as always
I have a question related to the dividend received from partially owned company, is dividend income recognized in the income statement of the parent? If not, can you explain why is that? Thanks
No. It's counted as a cash inflow on the Cash Flow Statement. Common Dividends are not shown on the Income Statement, only Preferred Dividends, because Net Income to Common at the bottom of the IS is supposed to represent the profit available to common shareholders. If you subtract Common Dividends on the IS, then the number at the bottom no longer represents what's available to the common shareholders.
@@financialmodeling
Thanks a lot for your response. I understand that dividend paid out by parent company to its common shareholders should not be included in IS, but what about the dividend paid out by a subsidiary to the parent company? Should it be counted as "other income" on the IS of the parent company?
@@GandalfthewhiteNick No. That treatment would apply only if the Sub Co is treated as a normal "investment" (stocks/bonds etc.) rather than an equity investment where the Parent has some amount of influence/control.
Pretty succinct presentation. Quick question. How do you go about when the holding company acquired the balance of the minority interest. Example: Hold. Co acquired 80% of the equity in the sub. in 2020. Goodwill has been recorded along with the NCI in the consolidated FS. However, Hold. Co acquired the balance of 20% of NCI in 2021. What are your thoughts on accounting? Do we need to re-work the Purchase price allocation which was initially made during the 80% acquisition including the additional Purchase Consideration paid to acquire 20%, assuming 100% share holding ownership and changing the already existing Goodwill value?
PPA is always based on 100% of the other company's Equity Purchase Price for any >= 50% deal, so no. All that happens is the NCI goes away when going from 80% to 100%, Goodwill stays the same, Cash/Debt/Equity change based on the deal funding, and you use a Gain or Loss to plug the gap.
Why do you calculate goodwill by substracting equity investment from acquisiton cost? Shouldn’t you use fair value of net asset instead?
I'm not really sure what you're referring to because we don't deduct the equity investment. Goodwill is based on the Equity Purchase Price for 100% of the Target minus the Target's Common Equity + Target's Existing Goodwill (since it's written down in the deal).
For ratio analysis, like net profit margin, would you use net income or net income attributable to NCI?
You should use the Net Income line at the very bottom of the IS, after the deduction for NCI Net Income and any other deductions/additions/adjustments.
It was not easy finding this answer. I appreciate your response. Thank you!
Super
Thanks for watching!
What kind of adjustment that we should do if target co has goodwill?
No special adjustment. The Target's Goodwill is always written down and recalculated in > 50% acquisitions regardless of its value pre-deal.
I really like how you explain that. But its hard to catch up, where are you harrying? Do it slower, please)
You can adjust the speed if you want. If it's not available on RUclips, various plugins let you do this.
3:40 excel is showing 60 minus 5 = 56 !!
Yes, it's due to rounding. No way to fix it unless we change the decimal places.