Understanding a company’s financial health is essential before making any investment. Whether you are a beginner or rely on share market advisory services, reading financial reports helps you assess performance, risk, and growth potential.
Two types of financial reports, standalone vs consolidated financial statements, often confuse investors.
This guide will simplify the concepts and help you learn how to read balance sheets and decipher income statements with confidence.
What Are Financial Statements?
Financial statements are formal records of a company’s financial activities and performance over a period. These include:
- Balance Sheet – shows assets, liabilities, and equity
- Income Statement (Profit and Loss) – reveals revenues and expenses.
- Cash Flow Statement – tracks inflow and outflow of cash.
- Statement of Changes in Equity – reflects changes in ownership value.
What Are Standalone Financial Statements?
Standalone financial statements represent the financial performance and position of a single entity, the parent company, without including the results of its subsidiaries or associated companies.
Key Features:
- Reflect only the operations of the parent company.
- Do not include the financials of subsidiaries, joint ventures, or associate companies.
- Help understand the core business strength of the parent entity.
For example, if Tata Motors reports standalone results, it shows how Tata Motors performed in isolation, without including companies like Jaguar Land Rover or Tata Technologies.
These statements are useful when an investor wants to evaluate how profitable or efficient the parent company is by itself.
What Are Consolidated Financial Statements?
Consolidated financial statements are financial reports that combine the financials of the parent company and all its subsidiaries, associate companies, and joint ventures.
Key Features:
- Present a comprehensive financial picture of the entire business group.
- Include revenues, expenses, assets, and liabilities of all entities under the group.
- Eliminate intra-group transactions to avoid double-counting.
For example, consolidated financial statements of Tata Motors will include figures from Jaguar Land Rover, Tata Technologies, and any other company it controls or significantly influences.
As per Indian Accounting Standards (Ind AS) and international accounting norms, publicly listed companies are required to publish consolidated statements for transparent reporting.
Standalone vs Consolidated Financial Statements: Key Differences
Understanding the contrast between standalone vs consolidated financial statements helps in interpreting financial data correctly. Here’s a side-by-side comparison:
| Feature | Standalone Financial Statements | Consolidated Financial Statements |
| Scope | Only parent company | Parent + subsidiaries and associates |
| Purpose | Shows core entity’s performance | Shows group-wide financial performance |
| Complexity | Simpler to prepare and read | More detailed and complex |
| Investor Clarity | Good for evaluating individual company | Better for overall financial health |
| Internal Transactions | Not adjusted | Eliminated for accuracy |
| Usage | Legal compliance, segment evaluation | Transparency, group-level decision making |
| Regulation | Required by Companies Act | Mandated by SEBI and Ind AS for listed firms |
By understanding both, investors can assess where a company is earning money and how much influence subsidiaries have on its profitability.
Why Are Both Financial Statements Important for Investors?
Both standalone financial statements and consolidated financial statements serve different purposes. Here’s why both matter to investors:
1. Clarity on Core Operations
Standalone financials help investors understand the profitability of the primary company without the noise of subsidiary data. For example, if a parent company is profitable while its subsidiaries are not, standalone data shows the true core strength.
2. Group-Level Performance
Consolidated statements show the overall performance of the business group. This is critical when evaluating diversified companies like Reliance Industries, which have businesses in oil, retail, telecom, etc.
3. Risk Analysis
An investor relying on only one set of financials may misjudge the risk. For instance, a profitable standalone result may mask losses in subsidiaries unless one looks at consolidated numbers.
4. Informed Decisions
Share market advisory services often recommend reviewing both statements to make better long-term investment decisions.
Examples: Reading Standalone and Consolidated Financials
Let’s look at an example to understand the difference better:
Example 1: Hypothetical Company – ABC Ltd.
ABC Ltd. owns 100% of a subsidiary XYZ Ltd.
| Particulars | ABC Ltd. (Standalone) | ABC Ltd. + XYZ Ltd. (Consolidated) |
| Revenue | ₹500 crore | ₹750 crore |
| Net Profit | ₹100 crore | ₹80 crore |
| Debt | ₹200 crore | ₹400 crore |
Here, the standalone statements show a net profit of ₹100 crore, but the consolidated version reveals a lower group-level profit of ₹80 crore. This indicates that the subsidiary XYZ Ltd. is making losses or has high costs.
Example 2: Real Example – Tata Steel (as per public filings)
Tata Steel’s standalone PAT (Profit After Tax) may be ₹2,000 crore, but its consolidated PAT (including operations from Europe and Southeast Asia) might show a different picture — often significantly lower or higher.
This is why understanding how to read balance sheets and deciphering income statements in both contexts is crucial.
Which Financial Statement Should You Rely On as an Investor?
Both statements have value, but which one to prioritize depends on your investment objective:
Choose Standalone When:
- You want to assess the core business performance of the parent.
- You are evaluating operational efficiency at the parent level.
- You want to understand segment-wise profit or loss.
Choose Consolidated When:
- You want a holistic view of the company’s total performance.
- You are investing in companies with multiple subsidiaries.
- You need to assess group-level risks and liabilities.
Large investors and share market advisory services usually prefer consolidated financial statements for long-term evaluation, while retail investors may refer to standalone statements for quarterly trends or specific segment performance.
How Are These Statements Regulated in India?
India has well-defined regulatory frameworks ensuring companies report both sets of financials accurately:
1. Companies Act, 2013
- Mandates the preparation of both standalone and consolidated financial statements for companies with subsidiaries.
- Ensures that shareholders get a complete financial overview.
2. SEBI (Listing Obligations and Disclosure Requirements)
- Requires listed companies to disclose both standalone and consolidated results quarterly and annually.
- Promotes transparency and comparability across companies.
3. Indian Accounting Standards (Ind AS)
- Align with International Financial Reporting Standards (IFRS).
- Provide specific guidelines on consolidation, elimination of intra-group transactions, treatment of joint ventures, etc.
By adhering to these regulations, Indian firms provide a reliable and consistent framework for investors to analyze financial performance.
Conclusion
Understanding the distinction between standalone vs consolidated financial statements is key to making smart investment choices. While standalone statements tell you how the parent company is performing, consolidated statements give a complete view of the entire business group.
Whether you are using share market advisory services or conducting your own research, it’s essential to compare both standalone and consolidated data. Start by understanding basic financial terms and learning how to read balance sheets. Don’t focus solely on profits, also, evaluate debts, expenses, and cash flows. Mastering these concepts and basic financial terms will empower you to assess companies more accurately and make informed investment decisions.
Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
FAQs
What is the major difference between standalone and consolidated financial statements?
The main difference is scope. Standalone financial statements present the financials of the parent company alone, while consolidated financial statements include the combined financials of the parent and its subsidiaries.
Why do companies publish both standalone and consolidated results?
Companies publish both to offer transparency. Standalone reports help assess the main company’s health, while consolidated statements reveal how the entire group is performing — crucial for diversified companies.
Are consolidated financial statements more reliable?
Yes, for most investors. Consolidated financial statements provide a complete picture of a company’s operations and finances across its group. They are more useful for evaluating overall performance and risk exposure.
Do retail investors need to read both statements?
Yes. Retail investors benefit from comparing both to understand where profits or losses are coming from. Relying solely on one can give a distorted view of a company’s health, especially in large conglomerates.
Where can I find these financial statements?
Both standalone and consolidated financial statements are usually available through multiple sources such as company annual reports, stock exchange filings on platforms like NSE and BSE, the SEBI website, and the investor relations sections of company websites. These platforms provide access to reliable financial data, helping investors understand a company’s financial performance using accurate and updated information.
