Loading the player...

What is to 'Consolidate'

To consolidate is to combine assets, liabilities and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements, where all subsidiaries report under the umbrella of a parent company. Consolidation also refers to the merger and acquisition of smaller companies into larger companies.

BREAKING DOWN 'Consolidate'

Consolidation involves taking multiple accounts or businesses and combining the information into a single point. In financial accounting, consolidated financial statements provide a comprehensive view of the financial position of both the parent company and its subsidiaries, rather than one company's stand-alone position. In business, consolidation occurs when two or more businesses combine to form one new entity, with the expectation of increasing market share and profitability and the benefit of combining talent, industry expertise or technology.

Consolidation in Financing

In consolidated accounting, the information from a parent company and its subsidiaries is treated as though it comes from a single entity. The cumulative assets from the business, as well as any revenue or expenses, are recorded on the balance sheet of the parent company. This information is also reported on the income statement of the parent company.

This is used when the parent company holds a majority stake by controlling more than 50% of the subsidiary business. Parent companies that hold more than 20% qualify to use consolidated accounting. If parent company holds less than a 20% stake, it must use equity method accounting.

Consolidation of Businesses

Businesses consolidate when two or more small businesses combine to form one larger organization. Also referred to as amalgamation, consolidation can result in the creation of an entirely new business entity or a subsidiary of a larger firm. This approach may combine competing firms into one cooperative business.

For example, in 2015, Target Corp. moved to sell the pharmacy portion of its business to CVS Health, a major drugstore chain. As part of the agreement, CVS Health intended to rebrand the pharmacies operating within Target stores, changing the name to the MinuteClinic. The consolidation was friendly in nature and lessened overall competition in the pharmacy marketplace.

A consolidation differs from a merger in that the consolidated companies may also result in a new entity, whereas in a merger, one company absorbs the other and remains in existence while the other is dissolved.

Consumer Debt Consolidation

Within the consumer market, consolidation includes using a single loan to pay off all of the debts that are part of the consolidation. This transfers the debt owed from multiple creditors, allowing the consumer to have a single point of payment to pay down the total. Often, debt consolidation achieves more manageable monthly payments and may result in a lower overall interest rate.

RELATED TERMS
  1. Consolidated Financial Statements

    Consolidated financial statements are a merging of the statements ...
  2. Debt Consolidation

    Debt consolidation is the act of combining several loans or liabilities ...
  3. Consolidation Phase

    Consolidation phase is a stage in the industry life cycle where ...
  4. Non-Controlling Interest

    Non-controlling interest is an ownership position in which a ...
  5. Direct Consolidation Loan

    A direct consolidation loan is a type of direct loan that combines ...
  6. Fair Value

    Fair value is the value of a company’s assets and liabilities ...
Related Articles
  1. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  2. Personal Finance

    Consolidating Debt: What If You Have Bad Credit?

    Getting a debt consolidation loan is more difficult when you have bad credit. But it could still help put you on the road to improving your credit score.
  3. Investing

    Consolidating Debt

    Debt consolidation is one of the most powerful tools for debt elimination. Find out how this process works and what it can do for your personal finances.
  4. Insights

    Top 4 Companies that Consolidate Private Student Loans (CFG)

    Consolidating your student loans can save you money.
  5. Trading

    Technical Buy Points on High-Flying Stocks

    A look at where to consider buying these strong stocks that recently started pulling back.
  6. Taxes

    Debt Consolidation: When It Helps, When It Doesn't

    Here's the smart way to use a debt consolidation to get your financial life back on track
  7. Personal Finance

    Debt Consolidation Made Easy

    Five steps to consolidate and pay off your debt.
  8. Investing

    Fidelity Investments: Consolidating Accounts Can Save Investors Money

    Fidelity Investments makes the case as to why it's better to consolidate investment accounts with one provider.
RELATED FAQS
  1. What are the Differences Between Affiliate, Associate and Subsidiary Companies?

    The main difference between affiliate, associate and subsidiary companies has to do with the existing level of ownership ... Read Answer >>
  2. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  3. What happens during the consolidation phase of an investor's life cycle?

    Unlike the accumulation phase – where emphasis is placed on growing wealth – the consolidation phase is a balance between ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center