Consolidated financial statements & Separate financial statements. What's the difference?

1. What are consolidated financial statements and separate financial statements?

2. And how are the two different?

I will try to explain the above topics simply.

Don’t worry if this is your first time hearing about it; I will explain it as simply as possible.

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1-1. What is a consolidated financial statement?​

A financial statement prepared when a company controls or owns another company (a subsidiary). For example, if Company A owns Company B 100%, it combines the financial conditions of A and B into one.
Source: Fair Trade Commission

This way, you can see the overall financial condition of the group at a glance.

As a real example, Samsung Electronics has several subsidiaries (such as Samsung SDI, Samsung Life Insurance, etc.). Therefore, if you want to see the financial condition of the entire group, you need to check the consolidated financial statement.

1-2. What is a separate financial statement?

A financial statement that shows a company's independent financial condition, including or excluding subsidiaries.
In the previous example, even though Samsung Electronics owns subsidiaries, if you only want to see Samsung Electronics' pure sales, costs, profits, etc., you would look at the separate financial statement.​

Inclusion or exclusion of internal transactions is a key feature of the consolidated financial statement, as it removes the internal transaction details between the parent company and subsidiary.

Let me explain what this means with an example.

Let’s say Company A is the parent company that makes automotive parts, and
Company B is a subsidiary that assembles and sells cars.

Assuming that A (the parent company) supplies 100 million won worth of automotive parts to B (the subsidiary).
Then, B (the subsidiary) uses these parts to make cars and sells them to customers for 200 million won.

When preparing the consolidated financial statement, the sales of 100 million won from A to B are considered an internal transaction and are removed.
Instead, only the final sales of 200 million won to customers are recorded.

Why is removing internal transactions important?

If internal transactions are not removed, the revenue from transactions between the parent and subsidiary can be counted twice.
For example, in the above case, if you add A's and B's sales separately, the total revenue would appear to be 300 million won, but
the actual revenue from sales to customers is 200 million won.

The consolidated financial statement eliminates this duplicated revenue, thus providing a more accurate picture of the company's financial condition.

In conclusion, a consolidated financial statement's major advantage is that it removes duplicate income between the parent and subsidiary companies. If you want to better understand a company's real financial condition, it’s important to check the consolidated financial statement.

​If a company has many internal transactions or a complex group structure, be sure to check the consolidated financial statement! 😊

​2. Let's compare the differences between the two

​​3. What should you focus on when looking at financial statements?​DART (see the image below) For example, if you look at Samsung Electronics' consolidated financial statement for 2023,

Consolidated financial statements are mainly viewed by investors looking to understand the group's overall growth and stability. They are used to analyze how robust this company is, including its subsidiaries.

Separate financial statements are used when you want to look at the financial condition of an individual entity. You can check how much profit this company makes on its own.

4. Can we understand it with real-life examples?

Let’s take another look at the 2023 consolidated financial statement of Samsung Electronics on DART (see the image below),

Out of the total sales of 300 trillion won, sales from subsidiaries (Samsung Display, Samsung Electronics Services, etc.) are also included.​
In contrast, Samsung Electronics' separate financial statement shows approximately 250 trillion won in sales for just the head office.

In conclusion, the consolidated financial statement gives you a feeling of the big forest, while the separate financial statement gives you a feeling of a single tree.

Thus, financial statements are an important tool for understanding a business.
​By appropriately utilizing both consolidated and separate financial statements according to the situation, you can gain a more accurate grasp of a company's condition.

If you have any questions, feel free to ask anytime! 😊

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