See: Subsidiary. See: Consolidated Income Statement. See: Consolidated Balance Sheet.
MegaGlop Corp has 12 divisions. They report the financial results of each subsidiary separately. Like...the windshield wiper division last quarter had $378 million in revenues and $28 in earnings. They reported the other 11 divisions separately. The results came to investors a la carte, separately, unconsolidated or mashed together.
Why does this matter? Well, when a company has a dozen divisions and all they report is a consolidated earnings number, that number doesn't really mean a whole lot. Which division is growing fast? Which is dying? Which is flat? Just a single number doesn't convey anything about the elements of the soup, so investors feel lost when looking at that number. And "lost" usually means "low multiple," as investors hate ambiguity. (See: Conglomerate Discount.)
Conglomerates with a dozen divisions that don't report separately get punished by the Street with a low price-to-earnings multiple. Ouch.
Related or Semi-related Video
Finance: What is a Consolidated Balance ...3 Views
Finance a la shmoop what is a consolidated balance sheet? okay people
this is a tale of two balance sheets it was the best of times right here and all [Lemonade stand balance sheet appears]
that cash no debt,, yeah and it was the worst of times and pretty much the
opposite and then one magical mergy day the two companies possessing these
two divergent balance sheets decided to you know merge it was a lovely ceremony [Bride and groom holding hands]
the bride wore white the groom stepped on the glass so then the balance sheets
were consolidated that is they were merged or combined or fully brought
together liabilities plus liabilities assets plus assets so the few dollars in
cash here in the worst of times balance sheet
well that was tacked on to the cash in the best of times balance sheet and the
same happened with long term liabilities and short and eventually after the
wedding night was you know consummated these two balance sheets had merged and [Man and girl standing by their lemonade stands]
consolidated and looked like this and that's what happens when companies merge
everything including their balance sheets consolidate let's hope they
generate lots of tiny cash flows and credits in the future....Mazel Tov
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