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Guide: NCI calculation doesn't have to be a pain

21st Dec 2021
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If a change in Non-Controlling Interests (NCI) is not posted correctly in your Excel spreadsheet and does not follow the structure of your group, it will lead to incorrect results in the management report. When the parent company does not own all the shares in their subsidiaries, they only have the ownership rights to the amount they own – and this is where the NCI comes into play on the financial report. 

Have you acquired new business or made changes to your existing? 

Something we often see containing errors is the non-controlling interest calculations. And although it is common for groups to own controlling shares in different levels of their subsidiaries, calculating your non-controlling interest tends to become a pain in the financial report, especially when we see multiple sub-level subsidiaries. The reason? 

While you might remember to do the NCI on one level, it can influence the equity and result if you do not calculate it at every level of the group structure. Or, more accurately, the management's decisions according to this information.

As a finance professional, you know the impact of wrong equity calculations. The parent company needs to know whether their earnings come from a part-owned subsidiary of their wholly-owned company. And even though your equity looks the same, the management's decision on whether the companies' earnings should be used as profits or to cover a deficit can change. For example, if the profit on the financial report stems from 100% of the controlling shares in a subsidiary, but you only own 60%, then the last 40% might result in a deficit.

Do you remember to calculate your subsidiaries' NCI?

One of the most time-consuming and common mistakes is when a parent company holds 70% of the controlling shares in a subsidiary. While you might include the 30% as non-controlling interest, the result often seen is that your calculation of NCI ends there instead of following the group structure all the way. But what if your subsidiaries only hold 60% of their subsidiaries? You also need to include these percentages in the calculations. The 70% do not stem from 100% of the subsidiary, but from the 60% – which will give you a different result.

Non-controlling interest

Furthermore, imagine if your subsidiary holds three companies, all with a different amount of controlling interest, such as 60%, 81%, and 90%. And if you top it off with subsidiaries who sell and acquire business ongoing, it will not be updated from last year. But why are many companies experiencing mistakes when following the group structure down? The most common reason is that too many do it manually and do not have a consistent procedure for these calculations. 

With automation, you can ensure that every change to NCI is correct. Even with multiple modifications in subsidiaries, the correct information is constantly updated and ensures management can make more sound decisions. And in the competition, today, real-time information and correct data are what will make the difference. On top of that, automation also updates your currency.

If you are still using Excel for your consolidation and experience challenges with NCI, then read our guide:

AVOID THE MOST COMMON MISTAKE IN YOUR NON-CONTROLLING INTEREST CALCULATION 

Download our guide for a deeper understanding of how you can solve the three most common mistakes, and how you can use automation to avoid errors.