Two screeners, the same company, the same audited annual report, and two price-to-earnings ratios: 21.4 and 33.3. Neither has made an arithmetic error. The consolidated profit statement of a group with partly owned subsidiaries does not end in one number; it ends in two, and the gap between them is the whole of the discrepancy. The same split runs down the balance sheet, where it decides book value per share, and into return on equity, where taking one half from the top statement and the other from the bottom one produces a figure nearly seven percentage points too flattering. None of this is buried. It is on the face of both statements, two lines from the bottom.
Three brothers run a shop together and the eldest keeps a single set of books for the whole of it. At the bottom of the year he writes the profit: ₹7 lakh. Your share is a third. Telling your wife "the shop made ₹7 lakh" is entirely true. Planning next year's spending on ₹7 lakh is a mistake, and it is not a mistake anybody made in the books — it is a mistake about which line at the bottom of them is yours.
A consolidated profit statement is the eldest brother's book. Because control rather than ownership decides what goes in, all of a partly owned subsidiary's revenue and profit is in there. The last two lines then divide the profit: attributable to owners of the parent, and attributable to non-controlling interests. Only the first of them belongs to the shares that have a price on the screen.
One group, read twice
The leverage term in this decomposition is assets divided by equity. In a group there are two candidate denominators — total equity, and the part attributable to owners — and they differ by the whole of the non-controlling interest. Whichever you pick, the profit in the margin term has to be the matching one.
Buying out the minority
A group that already controls a subsidiary sometimes buys the rest of it. The announcement is usually framed as simplification of the structure, and the arithmetic that follows is worth working through in full, because the one number a headline quotes improves sharply while three that are not quoted deteriorate, and nothing at all about the business changes. The accounting matters here: because control does not change, the purchase is not an acquisition. It is a transaction between the owners of the group. No goodwill arises, nothing goes through the profit statement, and the difference between what is paid and the carrying amount of the non-controlling interest removed is charged directly to equity.
- The partly owned subsidiary is profitable and growing, so the minority's share of equity compounds
- The parent has kept a strategic or financial partner in a business that needs one
- A listed subsidiary gives you a market price for the minority stake, which makes the enterprise value adjustment exact rather than estimated
- The statement of changes in equity shows the non-controlling interest rising through retained profit, not through fresh issues
- The growth in group revenue came from consolidating businesses the group owns only part of, while the profit attributable to you grew far more slowly
- Fresh stakes in subsidiaries have been sold to fund the group, so the non-controlling interest is rising because your share of the same assets is falling
- The cash is being generated in the entity with the largest minority, which is the entity whose cash reaches the parent most diminished
- Screeners and headlines quote consolidated revenue and consolidated profit, both of which grow faster than anything that belongs to you
A group reports consolidated profit of ₹880 crore, of which ₹310 crore is attributable to non-controlling interests, on 40 crore shares. Consolidated total equity is ₹6,000 crore, of which ₹1,600 crore is non-controlling interests. What are earnings per share and a correctly matched return on equity?
Consolidated profit ₹700 crore. Par neeche do line hain: ₹250 crore doosre shareholders ka (55% wali subsidiary ka baaki 45%), aur ₹450 crore aapka. Shares 50 crore, bhaav ₹300. EPS = 450/50 = ₹9, PE 33.3. Jo screener 700/50 = ₹14 leta hai, wahi PE 21.4 dikhata hai — same audited kitaab, do jawab. Wahi khel book value mein: total equity ₹5,000 crore, usme ₹1,300 crore doosron ka, toh aapka ₹3,700 crore = ₹74 per share, P/B 4.1 (na ki 3.0). Aur ROE? 450/3,700 = 12.2% theek hai, 700/5,000 = 14.0% bhi theek hai — par 700/3,700 = 18.9% mila-jula hisaab hai — bada numerator, chhota denominator, isliye yeh wala hamesha achha dikhta hai. Ulta mila do (450/5,000 = 9.0%) toh kam dikhega. Niyam yeh hai: upar aur neeche, dono ek hi maalik ke hone chahiye.
- A consolidated profit statement ends in two figures, and only profit attributable to owners of the parent belongs to the listed shares.
- Non-controlling interests sit inside equity, so book value per share and return on equity have the same two-answer problem as earnings per share.
- The rule for all of them: numerator and denominator must cover the same set of owners, and every mixed pair flatters.
- Consolidated EBITDA includes all of a partly owned subsidiary, so a comparable enterprise value has to include the non-controlling claim.
- Buying out a minority raises earnings per share whenever the profit picked up beats the after-tax funding cost — true across a very wide span of prices — and cuts book value per share at any price above the non-controlling interest's carrying amount, so neither movement is evidence about the price.
Mark it done to track your progress through the curriculum.