Consolidated vs Standalone Financials: Explained by Lloyd Jude Sunny
When companies declare their statistics, we often get acquainted with the words such as "Consolidated Results" and "Standalone Results", in this article, we will understand these concepts with leading business intelligence analyst, Lloyd Jude Sunny giving his two cents on what should one use to assess a company's health.
According to Lloyd, "Consolidated statements represent the financial position of a company and its performance including its subsidiaries, joint ventures, and associate companies.
For example: Let us assume the example of HDFC Bank. HDFC Bank(Parent Company) has many subsidiaries like HDFC Life Insurance, HDFC Asset Management Company(AMC), NextGen Publishing to name a few. For the purpose of understanding, let us just take three.
Now HDFC Bank performs regular retail banking operations along with running subsidiaries such as an AMC, an insurance company, and a publishing house to name a few. Each of these subsidiaries adds wealth to their parent company i.e. HDFC Bank LTD".
"When we consider the consolidated statements of HDFC Bank Ltd. we also consider the contribution of its subsidiaries in consideration along with the HDFC retail banking activity i.e. AMC, insurance company and publishing house plus the functioning of the bank", whereas standalone financial statements consider the functioning of the company as a single entity and do NOT include the contribution of its subsidiaries.
For instance, when you go through the standalone financial statements of a company, you read the financial position of the company with respect to its banking functions ONLY or all those functions which only HDFC Bank Ltd. performs as a separate entity not taking into consideration the contributions of its subsidies", he adds.
On the question of what should be chosen amongst Consolidated or Standalone financials, Lloyd says, "As a rule of thumb, if you want to know the total overall financial strength of the company you mostly read the Consolidated financials of the company".
On being asked when someone needs to read standalone financials, he says, "Generally, when there is no direct business-related intervention into its subsidiaries and associates you consider the standalone statement of the company. Otherwise, when you wish to analyze the financial health of the parent company as a separate entity you may read the stand-alone statements".
"A good investor analyses BOTH consolidated and standalone statements to figure out shortfalls in the companies or any of its subsidiaries", adds Lloyd.