EQUITY COMPONENT IN WACC : NON-CONTROLLING INTERESTS

Issue:

 

I see in many valuation books, there is no mention at all about the Non-Controlling Interest/NCI (or formerly known as Minority Interest) as part of the Equity component in the WACC. Though it might be obvious for some analysts, it could raise a bit confusion upon reading the balance sheet, and they noted that NCI be shown as part of Equity (Note : Formerly, shown separately from the Equity. In general, the minority interest is displayed above Equity section in the past). The NCI shares are also floated and listed in the stock exchange, so by taking Outstanding Shares x Market Price/share, it is pretty much the total of that calculation has included NCI value.

However, I noted that IFRS (International Financial Reporting Standard) 3 on Business Combination is a bit different in valuing  NCI [for the purposes of determining the goodwill], in which the valuation of the NCI could be made by either: (i) Fair Value Method or (ii) Proportionate Share of the acquiree/target’s [fair value] identifiable net assets. Assuming (ii) is followed, will that mean, it is possible to have the market value of the Equity in the WACC = Controlling Shares x Market Price/Share + Proportionate Share of the Acquiree/Target’s [Fair Value] identifiable net assets (for NCI)?

 

[TO BE CONTINUED]

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