What does Consolidated result include?

By Research Desk
about 4 years ago
  • Consolidated financial statements show financial position of the parent company and its subsidiaries.
  • When a company, apart from its own primary operations, has stake in other businesses (subsidiaries, associates and joint ventures), it presents a combined financial performance for all its businesses. This is known as a ‘consolidated result’.

 

  • Consolidated financial statements help to understand financial health of the entire group of companies. i.e. financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flow of a parent (company) and its subsidies are presented as a part of the whole company.

Example:

  • Company XYZ is a holding company the owns four companies: Company A, Company B, Company C, Company D. Each company pays fees and royalties to Company XYZ (holding company).
  • At the end of the year, Company XYZ's income statement reflects a large amount of royalties and fees with very few expenses. An investor looking solely at Company XYZ's holding company financial statements could easily get a misleading view of the entity's performance.
  • However, if Company XYZ consolidates its financial statements "adding" the income statements, balance sheets, and cash flow statements of XYZ and the four subsidiaries together gives a more complete picture of the whole Company XYZ.
  •  Company XYZ's revenue are only 10 lakh, but the consolidated number shows that the entity as a whole controls 14 lakh in assets:

 

Company XYZ

Company A

Company B

Company C

Company D

Consolidated

Revenue

10,00,000

1,00,000

1,00,000

1,00,000

1,00,000

14,00,000

Assets

1,00,000

5,000

5,000

5,000

5,000

1,20,000

 

  • Consolidated financial statements provide a comprehensive overview of a company's operations. Without them, investors would not have an idea of how well an enterprise as a whole is doing.
  • Generally, companies owning only a minor interest (less than 20%) in an entity usually do not need to consolidate them on their statements. For example, if Company XYZ owned only 5% of Company A, it would not have to consolidate Company A's financial statements with its own.

 

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