What is a Consolidated Statement? Meaning and key components

A consolidated statement is a set of financial reports that combines the financial information of the parent company and its subsidiaries to produce a single set of financial statements. In essence, it involves combining the financial data of the main firm and all the smaller companies that it holds in one place.

Let’s break it down:

• Parent Company: This is the main company that owns one or more smaller companies, known as subsidiaries.
• Subsidiaries: These are the smaller companies owned and controlled by the parent company.

When a parent company has subsidiaries, it has to prepare a consolidated report to help give a complete picture of the financial health and performance of the whole company. This sentence brings together all the sales, costs, assets, liabilities, and other financial data for both the parent company and its subsidiaries.

Imagine you have a parent company that owns several smaller companies. Each of these smaller companies might have its own financial statements showing its revenues, expenses, assets, and liabilities. However, to get a clear picture of the entire group’s financial status, investors, regulators, and stakeholders would look at the consolidated statement, which sums up the financial data from all entities under the parent company’s control.

Key Components of a Consolidated Statement

Consolidated Balance Sheet

This document combines all of the entities’ assets and liabilities, including all the group companies. It is a process of consolidation of the balance sheet of the parent company with its subsidiaries. Intra-entity transactions between the different entities are omitted or removed to avoid double-counting. Overall, it is the group’s financial health statement that includes all its assets and liabilities on one page.

Consolidated Income Statement

Also known as a consolidated income statement, this report is an overview of the group’s revenues, expenses, and profits/losses. The scope of it covers the financial results of the parent company and its affiliates. The internal sales or costs between companies within the group are all removed from the calculations to avoid either inflating or deflating the profits. It helps in visualizing the overall profit or loss that the team is facing over a certain period.

Consolidated Statement of Cash Flows

This statement outlines all the cash that comes into and goes out of the group during a certain time frame. It combines the cash movements from the parent company and its subsidiaries, excluding any transfers of cash between them. It helps in understanding how much cash the group is generating from its operating activities, investing activities, and financing activities, providing insights into its liquidity and cash management.

Consolidated Statement of Changes in Equity

This statement provides the reader with a detailed view of the changes in the equity line of the group, which includes retained earnings, share capital, and various reserves, over a given period. It exhibits the group’s equity position, taking into account factors like profit or losses, dividend payments, allotment of new shares, and other equity-related transactions. It provides a complex picture of the group’s stockholders and their contributions over time.

Why Use Consolidated Financial Statements?

Consolidated financial statements are an essential tool for businesses and investors since there are certain crucial reasons. First and foremost, they assist businesses in realizing their total income and expenses by adding up the financial data of the parent companies and their subsidiaries. This systemic approach assists in decision-making regarding financial strategies and operations by providing the right information. Furthermore, combined statements can be beneficial for tax purposes and may result in tax benefits or lower tax rates as a result of the group’s operations aggregated or losses.

Secondly, in addition to that for investors consolidated financial statements provide the whole picture of the group’s health and performance. Investors want to see how their investment will be affected across the entire group of companies within the parent company. Through the aggregated presentation, these elements provide transparency and a clear vision, allowing investors to evaluate the group’s financial condition, and make confident investment decisions. While individual firms may publish their own financial statements, investors, for the sake of convenience and comprehensiveness, usually prefer consolidated statements to see the financial standing of the group as a whole.

Transform your team’s approach to productivity with Time Champ‘s intuitive platform. Book a demo today to discover a better way to manage your time and tasks.

People also look for

Annual Quota                     Basic Salary

Backfill                                 Attrition Rate

Bank Statement                Annual Income

FAQs