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What are Consolidated Financial Statements?

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  • Written By: Matthew Brodsky
  • Edited By: Susan Barwick
  • Last Modified Date: 17 September 2016
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The consolidated financial statements of corporations are financial reports that show how an entire holding company is performing. The statements show how the corporations' subsidiary companies are faring, and together, the subsidiaries can demonstrate how well the parent company is doing. It can be a complicated accounting procedure to produce consolidated financial statements as it involves translating the individual financial statements of the subsidiaries and consolidating the information into the group statement.

Many of the principal components of regular financial statements are included in consolidated financial statements. These are the statements of cash flows, the balance sheet, statements to the changes of shareholders' equity, footnotes and income statements. The income statements can give an idea of how the corporations are doing during the course of a year and whether they are profitable or not. Additional information on the income statement is often shared in the footnotes.

The statements on shareholders' equity show the activity on the equity side of the balance sheet from one year to the next, resulting from such actions as stock issuances or buy-backs or shareholder dividends. The balance sheet as a whole shows how well the corporation has done at the end of the year. The company's financial strength is indicated in the balance sheets of consolidated financial statements by how much property and value is owned compared to how much money is owed. Statements of cash flow specifically illustrate where company cash is entering and leaving corporate coffers.

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Audited consolidated financial statements can be one part of the financial review of the corporate annual report. The other part of the financial review is the discussion and analysis. This is the section of the corporate annual report where the company leaders explain why the corporation has performed financially the way it has over the past year. Whereas the consolidated financial statements are made up of numbers, the discussion and analysis section consists of a narrative statement as well as charts and graphs.

The overall financial statements and the consolidated financial statements are just one part of the overall corporate annual report. The other two parts are the executive letter and the business review. The executive letter is similar to the financial discussion and analysis, except it is a broader and shorter explanation of company performance and goals. The business review section is an overview of the company's recent past and of the internal and external events that affected it, as well as the company's goals and its risks.

The information companies reveal in their consolidated financial statements and their annual reports depends on the jurisdiction they are reporting in. Another key factor is whether the company is publicly traded or private. Public companies must reveal more information.

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