Owning part of another company
By SuperdayReps · Michigan Ross Undergrad | Wharton MBA · ex-Citi | ex-Greenhill · Former Head Mentor at a Leading IB Prep Service
9 min read · updated October 14, 2026
Companies own pieces of other companies all the time. A tech giant takes a stake in a startup. A carmaker owns part of a battery joint venture. A holding company controls a listed subsidiary but not all of it. The question an interviewer is really asking is simple: how much do you own, and how much say does that give you?
The answer decides which of three treatments applies. Each one puts the stake on the statements in a completely different way, and each one changes what you do in the enterprise value bridge. Learn the three, then learn the bridge, and you have the whole topic.
The three buckets
The rule of thumb runs on ownership, but the real test is influence and control. The percentages are guides, not bright lines. A 15% holder with two board seats can have significant influence; a 55% holder whose votes are contractually tied up may not control.
| Stake | What you have | Treatment | Where it shows up |
|---|---|---|---|
| Under ~20% | A passive investment | Fair value | One asset line; value changes and dividends through the income statement |
| ~20% to 50% | Significant influence | Equity method | One asset line; your share of the investee's net income on one line |
| Over 50% | Control | Full consolidation | Every line of the subsidiary, with noncontrolling interest for the rest |
We'll run one company through all three. Call it Target. This year Target earns $100 of net income and pays $40 of dividends. Our company, Parent, buys a stake in it. Ignore Parent's own taxes on the income so the mechanics stay clean.
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Frequently asked
- How do you account for a 10%, 30% and 70% stake in another company?
- It depends on how much say you have. A small stake with no real influence, usually under 20%, is carried as an investment at fair value. A stake that gives significant influence, usually 20% to 50%, uses the equity method: one line on the balance sheet and your share of the investee's net income on the income statement. A controlling stake, usually over 50%, is fully consolidated, with the part you do not own shown as noncontrolling interest.
- How does the equity method work?
- The investment sits on the balance sheet as one line. Each period you record your percentage of the investee's net income on your income statement, and the investment balance goes up by the same amount. Dividends you receive are cash in, and they reduce the investment balance. On the cash flow statement the equity income is subtracted, because no cash came with it, and the dividends received are what actually hit cash.
- Why do you add noncontrolling interest to get enterprise value?
- Because a parent that controls a subsidiary consolidates 100% of its EBITDA, but the parent's market cap only reflects the share it owns. Adding noncontrolling interest puts the other owners' slice back into enterprise value, so the numerator and the denominator of EV/EBITDA cover the same business.
- Why do you subtract equity investments to get enterprise value?
- An equity-method stake contributes to the parent's market cap but none of its income is in EBITDA, because the share of earnings sits below operating income. Subtracting the stake removes value that EBITDA does not measure, the same reason you subtract cash.
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