In valuing NCI, there are a number of processes we can go through, and the first one is to ask, is the subsidiary a separately listed company? If yes, then we can establish the market value by multiplying the subsidiary share price by the number of shares owned outside the parents.
If that's not possible, then the next question is, is the fair value of the NCI as of the balance sheet date provided in the footnotes, and that's gonna be in the footnotes of the parent company. If it is, then you can just use the given value. You need to check that it represents the fair value of all of the subsidiaries. Maybe you've got two or three subsidiaries, but the fair value is only being shown for one of them. You may need to do some additional calculations to value the others. If that's not available, then we ask, is the net income attributable to NCIS positive? If it is, then you can multiply that net income by some kind of PE multiple, and that would get you to a value. If it is available, we then ask, do we know what business sector the subsidiary belongs to? And if we do, then you multiply the sector PE multiple by the NCI income from the income statements. It then says, consider discounting the multiple to reflect lower liquidity because the sector PE multiple has been created from publicly owned companies where shares are easily traded, whereas now we're looking at NCI and maybe the shares are not publicly traded, therefore there's going to be a liquidity discount. 30% is a normal figure to use for this.
If we don't know the business sector, then we could assume the subsidiary is in a similar business to the parents, in which case we multiply the parents' historical pe, multiple by the NCI, income from the income statement. And once again, consider discounting the multiple to reflect low liquidity. If we can't do any of that, then we're going to be forced to use the book value and we'll be able to find this in the balance sheet of the parent company or in the notes to the parent company.
