Examples of What is a Consolidated Financial Statement?

Explore practical examples of consolidated financial statements in various business contexts.
By Jamie

What is a Consolidated Financial Statement?

Consolidated financial statements are a comprehensive financial report that combines the financial information of a parent company and its subsidiaries. This type of financial statement provides a holistic view of the financial health of a corporate group, allowing stakeholders to assess the overall performance and position of the entire entity rather than individual components. Below, we explore three diverse examples of what a consolidated financial statement looks like in different business contexts.

Example 1: Mergers and Acquisitions in the Tech Industry

When a large technology company, such as TechCorp, acquires a smaller software firm, SoftSolutions, they must prepare a consolidated financial statement to accurately reflect their combined financials. In this context, the statement will include TechCorp’s revenues and expenses, along with SoftSolutions’ contributions.

In the year following the acquisition, TechCorp’s consolidated financial statement might look like this:

  • Total Revenue: \(10 million (TechCorp) + \)2 million (SoftSolutions) = $12 million
  • Total Expenses: \(8 million (TechCorp) + \)1 million (SoftSolutions) = $9 million
  • Net Income: \(12 million - \)9 million = $3 million

This consolidated statement allows investors to see the overall profitability of the combined companies and understand how the acquisition has impacted TechCorp’s financial standing.

Notes:

  • Consolidated statements are essential for transparency in mergers.
  • They help stakeholders evaluate the effectiveness of strategic acquisitions.

Example 2: A Parent Company with Multiple Subsidiaries

Consider GlobalRetail, a parent company that operates several retail chains, including FashionStore, HomeGoods, and TechZone. Each subsidiary operates independently, but the parent company must present a consolidated financial statement to provide a clear picture of its overall performance.

For the fiscal year, GlobalRetail’s consolidated financial statement may present the following:

  • Total Revenue: \(50 million (FashionStore) + \)30 million (HomeGoods) + \(20 million (TechZone) = \)100 million
  • Total Expenses: \(40 million (FashionStore) + \)25 million (HomeGoods) + \(15 million (TechZone) = \)80 million
  • Net Income: \(100 million - \)80 million = $20 million

This consolidated statement shows stakeholders how well GlobalRetail is performing as a whole, rather than just focusing on the individual performance of each subsidiary.

Notes:

  • Consolidated financial statements are useful for assessing the financial health of the entire group.
  • They provide insights for potential investors and creditors.

Example 3: Non-Profit Organizations and Their Affiliates

In the non-profit sector, organizations often have affiliates or chapters. For instance, the non-profit organization HealthForAll has several local chapters that operate under the same mission. To present a complete financial overview, HealthForAll must create a consolidated financial statement that includes the financials from each chapter.

For the year, HealthForAll’s consolidated financial statement might include:

  • Total Revenue: \(5 million (Headquarters) + \)1 million (Chapter A) + \(1.5 million (Chapter B) = \)7.5 million
  • Total Expenses: \(4 million (Headquarters) + \)900,000 (Chapter A) + \(1.2 million (Chapter B) = \)6.1 million
  • Net Income: \(7.5 million - \)6.1 million = $1.4 million

This statement helps donors and stakeholders understand the overall impact of the organization and how funds are being utilized across different chapters.

Notes:

  • Non-profits benefit from consolidated statements for transparency and accountability.
  • They can highlight the effectiveness of fund allocation across various programs.