As a business owner, it's your job to stay on top of lots of numbers and financials. If you have both equity holders and noncontrolling interest holders in your enterprise, one report you cannot afford to ignore is a consolidated income statement, a financial report that summarizes a business's sales revenue and expenses over a specific time period.
With this statement, you can quickly see the performance of a business based on its net income, gains, losses, and earnings per share, as well as view the distribution of net income between equity holders and other interest holders. Businesses often keep statements of income both quarterly and annually.
In addition to revenue and expenses, a consolidated income statement includes information regarding the distribution of net income to different types of shareholders, although this piece of the report is not necessary for businesses that don't sell shares.
A consolidated statement of income is often used interchangeably with the term "income statement." Some other synonymous terms include consolidated statement of earnings, consolidated income statement, statement of operations, and profit and loss (P&L) statement.
Preparing a consolidated income statement
A consolidated income statement is a straightforward list of the business's revenues and expenses. Items on the report generally include:
- Cost of sales
- Gross profit
- Operating expenses (selling, distribution, administrative, etc.)
- Operating profit
- Income from continuing/discontinued operations
- Net income
Within these categories may be variations, depending on the particular needs of the business. A company may choose, for example, to subtotal items such as gross profit and operating expenses. A single-step income statement does not separate out these items, while a multistep income statement groups similar items to calculate subtotals.
One notable benefit of multistep statements is that they provide investors with much more detailed information than what is included in a single-step statement. Due to the additional information they contain, multistep statements require added time and expense to prepare, but the benefit is substantial as they allow shareholders to better decipher a company's profitability.
Whether you are compiling a single-step or multistep document, the conclusion of the statement contains the business's net income, both from continuing operations and the total net income. The statement also generally includes information regarding earnings per share, if applicable to the company.
Purpose of a consolidated income statement
Preparing a consolidated income statement allows investors to see what is happening financially with the business, thus enabling them to gauge the current economic and potential future growth of the company.
This information also provides you, the owner, with vital information about how your business is performing on various levels, giving you the tools you need to suss out strengths and weaknesses and make adjustments and improvements where possible.
By compiling a consolidated income statement quarterly or annually—or both—you are providing a critical piece of your business's financial puzzle.