Standalone VS Consolidated Financial Statements:
Financial Statements are very crucial while doing Fundamental analysis of a company. Financial Statements are available in company’s Annual report.
Financial statements provide information on debt and liabilities of a company, it’s balance sheet, cashflow statements and also Profit and loss statements are provided in financial statements of a company.
Standalone vs Consolidated Balance Sheet:
Through balance sheet of company one can analyze inventory and assets of a company. Every Company has to make Balance sheets and cashflow statements.
Cashflow statements is created to determine how much money has flow inside and outside of company.
Cashflow statements are created mostly on three parameters:
- Business operations:
- Cash in flow: total business income and profit.
- Cash out flow: Business expenses.
- Cash in flow: when company sell fixed assets or shares.
- Cash out flow: when company buy fixed assets.
- Cash in flow: To collect money from general public company issued Debentures.
- Cash out flow: Dividend on company’s shares or interest in Debentures.
There Are Two Types Of Financial Statements:
- Standalone Financial Statements.
- Consolidated Financial Statements.
Standalone VS Consolidated Financial Statements. What’s the difference?
Standalone financial statement only have information about own company’s asset and liabilities.
While Consolidated financial statements have information about parent company as well as information about it’s subsidiary company
For Instance, let’s assume that you own company ABC ltd. But to expand your business you need my company’s XYZ ltd products.
So, You bought 60% shares of XYZ ltd. After that ABC ltd will be known as Parent company and XYZ ltd will be known as Subsidiary company of ABC ltd.
As you have 60% share in my company so you can control board of directors of XYZ ltd and can make decisions. Now as you own the parent company XYZ ltd you have to provide two types of financial statements.
As per rules, Companies those who have consolidated have to prepare two types of financial statements for quarterly results after every 3 months.
So If you want to do Stock Analysis of any Parent company who have intervention in management of it’s subsidiaries or have control in company’s board of directors then always consider Consolidated Financial Statements for Stock analysis and to calculate P/E ratio.
But if Parent company’s Subsidiary have very different business model and parent company doesn’t have much power in the board of directors or decision making in that subsidiary then always do Stock Analysis on basis of Standalone Financial Statements.
For Instance, ICICI Limted where parent company doesn’t have much intervention in management of it’s holding companies so while doing Stock Analysis of company’s like ICICI Limited, one should do it on basis of Standalone Financial Statements.
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