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Standalone vs Consolidated Financial Statements

01 June 2022

As a market investor, it is important to understand the financials of a company before investing in its shares. A public company releases its financial results every calendar quarter. These listed companies release two types of financial statements – consolidated and standalone. 

So, which statement should you consider to understand the financial position of the company? 

In this article, we will discuss standalone and consolidated financial statements and help you understand the similarities and differences between them.

What is a consolidated financial statement?

A consolidated financial statement offers insights into the financials of a company including its holding and/or subsidiary companies. Hence, if you are analyzing the statements of a large organization, then a consolidated statement offers a better picture of the performance of all the companies put together.

What is a standalone financial statement?

A standalone financial statement offers insights into the financials of a single business. So, if a company has multiple businesses, then a standalone statement of the company will offer details of the financial performance of that particular company. If you want to know how all the businesses of the company have impacted its performance, then you can look at its consolidated statements.

What’s the Difference?

Most investment experts recommend stock investors look at the consolidated statements of a company before making a decision to buy its shares. 

This is primarily because it offers a comprehensive picture of the performance of a company including its subsidiaries and holding companies. If you look at the standalone statement of one company and ignore the consolidated statement, then you can make an erroneous judgment. 

Example:

You are planning to invest in the shares of Reliance Industries because you think that Reliance Retail is expected to grow at a good rate in the near future. You analyze the standalone statement of Reliance Retail and find that it is financially sound, has low debt, good quality assets, and has the perfect platform to leverage the evolving retail landscape. 

However, being a part of Reliance Industries, the profits and losses of the group of companies will impact the financial performance of Reliance Retail. Hence, it is important to analyze the consolidated statements too. 

Having said this, it is also important to ensure that you do not ignore the standalone statement of a company. In fact, the best approach is to look at both statements to get a comprehensive understanding of the financial strength of a company.

Also, read - What is Balance Sheet and its Importance

A few differences between standalone and consolidated statements

  • Scope of analysis

Studying the consolidated and standalone balance sheet offers a better understanding of the financial performance of the company. If you look at the standalone statement alone, then you can miss out on the impact of the indebtedness of other subsidiary companies. 

  • P/E Ratios

Many investors look at the Price to Earnings (P/E) Ratio before making a decision. If you are looking at a large company with subsidiaries and associate companies, then make sure that you calculate the P/E Ratio using the consolidated financial statements. In such cases, standalone statements can offer an incomplete analysis.

Remember, standalone and consolidated statements need to be analyzed based on the company you plan to invest in. If you are trying to compare different companies from the same sector, then standalone statements can be a better idea. 

If you are analyzing a company that has subsidiaries in a similar line of business, then make sure that you look at consolidated statements. However, if you are looking at a company whose subsidiaries are in different business segments, then you need to focus on standalone statements. 

Summing Up

As a company grows, it tends to form subsidiaries and/or acquire new businesses. This can make it difficult for investors to analyze its performance based on either standalone or consolidated statements.

Hence, you need to analyze both statements to get a better idea of the financial standing of the company. 

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