What is a non-controlling interest, or NCI, or minority interest? Let's take an example to help explain it. Let's look at Barclay's Bank, UK Bank. Barclay's used to have a controlling stake in ABSA, a South African bank. The stake it had was 62.3%, but this means that somebody else must be providing the other 37.7%, and that's your NCI, your non controlling interest or minority interest. So why are we interested in NCI? Well, if I was looking at the accounts of Barclays consolidation rules say that Barclay's has to take all of Absa onto its accounts. 100% of Absa will be shown in Barclay's accounts. That means that Barclay's also has to record the NCI, the outside shareholders providing funds to Absa, which it has fully consolidated 100% into its accounts.

So how does the NCI affect enterprise value? Well, let's look at this from Barclay's point of view. Doing a quick recap of the enterprise value to equity bridge. We could start with Barclay's Equity, then add on Barclay's debt, subtract Barclay's cash to get to Barclay's enterprise value. You might notice that the right hand side gives us our sources of funds, and the left hand side gives us our uses of funds. So the sources of funds here, debt and equity, have been used to have some cash in the bank and enterprise value by machinery, by offices, desks, chairs, et cetera. Now, Barclays has had to take 100% of Absa onto its accounts. In this case, it's sitting right there in its enterprise value. But we know that Barclays is not providing 100% of the funding for Absa. Instead, 37.7% of the funding comes from somewhere else. So we now need to recognize that other source of funds, and that's the NCI that will be shown in Barclay's accounts because the NCI will get some of Absa's income. The NCI provides some of Absa's funding. So how does the NCI affect enterprise value? If I'm now trying to work out Barclay's enterprise value, I'll have to take Barclay's equity plus the NCI plus the debt minus cash to get to their EV.

Valuing that NCI box, that green box is crucial if we're going to get an accurate enterprise value for Barclay's. In this diagram, where does the 62.3% that Barclays own of Absa, where does that sit? Well, that's sitting in their equity. That's Barclay's equity. So that equity owns all of Barclays and 62.3% of Absa. The 37.7 that's not owned by Barclays sits in a separate box outside of Barclay's equity.