Consolidated financial statements represent what?

Consolidated financial statements provide a comprehensive view of the financial position and results of operations for a parent company and its subsidiaries as a single economic entity. This approach is necessary because it presents the collective financial information that stakeholders need to assess the overall health and performance of the combined operations, rather than viewing each entity separately.

In a consolidated financial statement, the parent company combines its financial results with those of its subsidiaries after eliminating intercompany transactions, such as sales and expenses that occurred between the parent and its subsidiaries. This elimination prevents overstating the group's revenues and expenses and reflects a more accurate picture of the group's financial status.

The consolidated financial statements are essential for investors, creditors, and other stakeholders who are interested in understanding the full scope of the activities and financial obligations of the entire group, rather than just isolated figures from individual entities. This holistic view supports better decision-making and assessment of the risks and opportunities inherent in the parent company's overall operations.