Standalone Vs Consolidated Financial Statements: Differences

I. Introduction

Financial statements serve as an important tool to see how the company is doing financially. Standalone vs consolidated financial statements are two primary types of financial statements and have different purposes in corporate reporting.

Definition of standalone financial statements

Standalone financial statements are financial statements with respect to a single entity only. Such statements except the performance of any of the subsidiaries and associate companies. However, they give a clear picture of the company’s individual performance and are usually used by management or investors to see if the company’s performance is good on its individual terms.

Definition of consolidated financial statements

While consolidated financial statements only combine the parent company and its subsidiaries, combined statements combine the information of a parent company along with any subsidiary or subsidiary company. This is a view of the corporate group’s financial position, performance, and cash flows in totality. The consolidated statements help investors and stakeholders to understand the group’s financial status holistically and based on these consolidated statements the decisions of investments are made.

Read More: What are financial statements, and why are they important?

II. Standalone financial statements

A standalone financial statement is a financial report of a single entity, which contains its individual performance as they have not consolidated the same of other subsidiaries or associate companies. The balance sheet, income statement, cash flow statement, and statement of changes in equity contain these details of the financial health and operations of a specific entity.

Overview

As the name suggests, a standalone financial statement is a financial report which showcases the financial performance, position, and cash flow of a company on its own basis excluding other affiliations or subsidiaries. It gives an idea of how the company is independent financially and what kind of performance your company is showing. For investors looking at just one company, seeing how much their potential worth is, it matters a lot. A standalone financial statement is a package of key financial metrics of an individual company’s revenue, expense, asset, liability, and equity.

Key features

Standalone financial statements would be those financial statements that reflect financial performance as well as the position of an entity and do not include its subsidiaries or associates. Key features include:

• Only shows the financial data of a company’s parent company;
• The balance sheet, income statement, cash flow, and equity changes are all included;
• Accounted in accordance with accounting standards; and
• Offers insights about individual company performance to management, investors and regulators.

Typical users

Standalone financial statements are mainly used for an organization’s stakeholders interested only in the financial health of a single entity. These users are typical: company management, shareholders, creditors and regulation authorities. They scrutinize the financial position, performance and cash flows of a given individual company without regard to subsidiaries. Standalone statements are required for decisions on investments, loans or compliance as they help you see the entity’s profitability and financial stability correctly.

III. Consolidated financial statements

The standalone financial statement is a set of fundamental financial numbers about an enterprise’s receipts, expenses, assets, debts and money. It is a product of a parent company, produced to stand for its subsidiaries within that company’s own financial stature. All of that financial information will be consolidated in the way it will be if the parent company does or does not own a majority equity stake in the subsidiaries.

Overview

It is important that the financial statements be consolidated because they are used to make informed economic decisions. Consolidated economic statements integrate the belongings, liabilities, equity, profits, price, and cash flow of the enterprise and its subsidiaries to present them as one single agency.

Key features

Consolidated financial statements of the parent company and its subsidiaries contain only the presentation of the financial position and performance of a parent company and its subsidiaries as a single entity. It comprises assets, liabilities, capital, and revenue for the entire group of companies. Double counting is eliminated by eliminating intra-group transactions. Exposing the group to the world provides the complete picture of the group’s financial health and allows stakeholders, such as investors and regulators, to make the right decisions.

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Typical users

Investors, shareholders, financial analysts, and regulatory authorities all are typical users of consolidated financial statements. With consolidated financial statements, these users can get the full picture of a parent company and its subsidiaries’ financial health to assess overall performance, risk, and profitability. They are also used by other key users such as lenders, creditors, and management as a means of making decisions, setting a financial or operating plan, and ascertaining that the financial reporting is complying with accounting standards.

IV. Key differences

Understanding standalone vs consolidated financial statements is necessary to know a company’s financial position. Financial position statements are standalone statements that represent the financial position of one entity, whereas the financial performance of a parent company and its subsidiaries is shown through consolidated statements.

Scope and reporting entities

Financial statements pertaining to one entity are known as standalone financial statements. They include all financial transactions of the entity as well as its assets and liabilities. Such analyses are useful for evaluating the performance of a single company unaccompanied with other relationships. On the other hand, the consolidated financial statements cover the group’s financials from a parent company and all its subsidiaries. These statements remove inter-company transactions to give a clear view of the financial position of the group.

Purpose and use

As standalone statements are used mostly to determine the performance and place of an individual entity. These are preferred by the investors and stakeholders to give them a clear view of the result of a specific entity. Consolidated statements not only allow investors, regulators, and creditors to interrogate the entire corporate group but also provide a holistic view of the entire corporate group.

Accounting standards and principles

Standalone financial statements present the financials of a single entity, while consolidated statements include the financials of the parent company and its subsidiaries. Accounting standards like IFRS and GAAP require consolidated statements to follow uniform principles across the group, eliminating inter-company transactions. Standalone statements focus only on the individual entity’s performance, adhering to applicable local or international standards.

V. Examples and applications

For different industries, standalone vs consolidated financial statements are used in different ways and provide important information for decision and stakeholder communication.

Practical examples

The standalone financial statements present in detail the performance and the position of a single entity. A retail store standalone financial statement contains revenue generated from the sales, operational expenses and net profit or loss. This statement enables other stakeholders like investors and creditors to determine the store’s financial position without looking at the performance of any of the affiliated entities.

Consolidated financial statements represent the financial results of a parent company and its subsidiaries as one unit. So, for instance, with a multinational corporation which holds several subsidiaries in different countries, the combined revenues, expenses, assets and liabilities are presented with consolidated statements reflecting the total status of the group’s finances. The aggregation facilitates the ability of shareholders to understand how the subsidiaries are financially connected to the parent company.

Industry-specific applications

For the banking industry, standalone financial statements effectively help measure individual branch performance, facilitate decision making and aid profitability analysis. Additionally, consolidated financial statements are the only means of assessing the overall bank’s financial soundness, and compliance with regulatory capital requirements, and providing for an independent audit of consolidated, banking group figures.

In the manufacturing sector, standalone must lead to better production efficiency as they depict specific product lines. Consolidated statements tell investors how the divisions diffuse the objective of the strategic growth of the company and its market position as a whole. This is an important distinction to make when performing financial analysis and making decisions in different industries.

VI. Conclusion

Standalone financial statements refer to those of a single entity, and consolidated financial statements show a complete picture of a parent company and its subsidiaries.

Summary of key differences

What differs most is the scope of their work. Standalone statements serve as insights into what transpired in one operation; consolidated statements, however, account for the results of many entities combined. The standalone statements emphasize a particular financial metric whereas consolidated statements speak about the total financial position of a group.

Importance of understanding both statements

Stakeholders need both types of statements. Used by investors, creditors, and management, they form the basis of how decisions are made and how risk and an organization’s potential for growth are assessed within the industry.

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