What Is the Meaning Of Consolidated Statement & Its Importance
5-6 minutes
The consolidated statement, also known as the ""consolidated financial statement,"" is a single company''s, a few companies'', or a few divisions'' financial statement. The statement contains helpful information to get an idea regarding the financial performance of the company or the group of companies.
A crucial factor of operating a successful enterprise involves keeping essential monetary reports. These reports enable the firm to have a recording of its cash inflows and outflows as well as taking steps to project their future cash flows. A consolidated financial statement will help the company that has several divisions or subsidiaries or any other entity of that kind to keep the record of all accounting activities without having an overwhelming volume of thousands of different types of reports.
To the uninitiated, what should be explained herein is what exactly consolidated financial statements are and how they differ from combined financial statements.
A combined financial statement is a financial report that shows how the money is being made by a business through its parent and subsidiary companies.
A ""parent company"" is typically a company that oversees another company while also possibly having some stake in the ownership of that company.
For example, many food brands will use the same name business to make their products unique. Suppose your business name is The Mega Soda Company, and that name might be the ""parent"" of a couple of different soda brands you own.
There are some people who confuse the consolidated statements with combined statements since both present the net income that a parent business and its subsidiaries have generated. However, they do so in different manners:
In consolidated financial statements, there is no differentiating the performance between the parent company and any subsidiaries. In fact, they are represented as one specific entity and their financial situation.
A financial statement can help a business figure out what its costs are and how much money it''s making. It may also be useful for filing taxes. An example of this is that some businesses utilize consolidated financial accounts, which treat a parent company and its subsidiaries as one, in order to get tax breaks or lower tax rates because of financial activities or losses.
Investors also find consolidated financial records very useful. Potential investors want to know as much as possible about a company before they decide to invest their money with the company of their choice. In order to do that, ideally, they need a consolidated financial statement, showing what the business and its companies are using the buyers'' money for. Normally, each company files its financial statements. However, buyers may request to view a consolidated financial statement in order to save some time.
Sometimes a parent company needs to present a combined financial statement and sometimes it doesn''t. A private company doesn''t have to disclose as much about its finances as a public company—for tax and pride reasons.
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