What are "consolidated financial statements"?

Consolidated financial statements are designed to present the financial position and results of operations of a parent company along with its subsidiaries as if they were a single entity. This approach gives stakeholders a comprehensive view of the overall financial health of the entire corporate group, rather than only the parent company or individual subsidiaries.

These statements combine all the assets, liabilities, equity, income, and expenses of the parent and its subsidiaries, eliminating any transactions or balances between them to prevent double counting. The consolidated approach is particularly important for investors, creditors, and regulatory bodies who need a complete picture of the financial status of an organization as a whole.

While basic financial statements, such as those for the parent company alone or those that focus only on cash flow or individual subsidiaries, offer limited insights, consolidated financial statements reveal the combined performance and financial condition, facilitating better decision-making and assessment of risk.