Basics of Consolidated Financial Statement

• Consolidated financial statements are designed to help investors and companies view several financial statuses on one document. Not every business needs or can even produce a consolidated financial statement. It is designed primarily for large parent companies to get a thumbnail sketch of their financial position. This requires specific accounting processes that the parent company must follow.

Comprehensive Look

• Parent companies are large corporations that own other businesses. Sometimes these businesses are related, all in the same industry, while other parent companies invest in a number of varied businesses. Either way, each business often has its own books and financial statements. The consolidated financial statement is a statement by the parent company that combines all the records of the businesses it owns into one document. Company leaders and investors then use this document.

Financial Data

• The consolidated financial statement shows the same information as normal statements, only for a group of businesses instead of a single business. The statement lists the collective assets of the businesses, all their liabilities and any expenses that they may have. The statement also lists the combined revenues of all the businesses.

Changes Made by Parent Companies

• Parent companies cannot simply combine all the statements of the businesses they own with their own books. The parent company and the small businesses may list the same assets in different fashions, essentially doubling the asset value. To avoid mistakes like this, the parent company eliminates investments in subsidiaries, interest, advances and dividends from its own books before combining statements.

Investor Advantages

• Investors can only use the consolidated financial statement if they are interested in investing in the parent company. The consolidated statement says nothing useful about subsidiary companies, since their own financial position is swallowed by the combined report. For those interested in investing in the parent company, the consolidated statement is a useful snapshot of how their total business interests are performing.