To consolidate, or consolidation, in business mainly refers to the process of assembling financial resources and instruments of two or more organizations into one. Another possible meaning of “consolidate” refers to an action when companies are combined into a larger organization via processes of mergers or acquisitions.
To consolidate, in general, means to unite objects or things in a one single thing (from Latin consolidare, the first known meaning in English - to combine into a whole). Several similar uniting processes are described by the same word in business, finance and accounting. The same thing about all those processes is the fact of combining different entities into a larger one. In financial and business areas, that might refer to different activities, and it’s worth to examine all cases separately.
When talking about accounting and finance, to consolidate means to integrate all financial report of all company’s branches, departments, subsidiaries (if it’s a group of companies) into a single unit for it to be submitted to a single person or a department in charge. This type of accounting is possible to employ if the parent company holds control over more than 20% of business. If the parent company has 50% and more, it will definitely use consolidated financial statements.
Consolidated financial reports give a thorough view on the company’s activities as a whole, which is especially useful if it is a group of companies. In a consolidated report, it’s easier to review the figures and measures of all subsidiaries in relation with each other and the parent company, which gives a more insightful picture of the financial dealings of the organization. In a consolidated financial statement, all expenses and income, financial securities and liabilities are reported as belonging to one organization rather than separating them into subsidiaries, with most of the information being reflected in the parent company’s balance sheet and the income statement.
Situations when it’s appropriate to consolidate several businesses occur pretty often for various reasons. To consolidate in business sphere usually means to combine several businesses into a new one, which brings new benefits for business owners. It’s important to distinguish consolidation and merging, with the main difference being that after merging one of the businesses combined usually cease to exist, while after consolidation it typically continues to operate with several changes in the organization.
Main reasons for consolidation are usually the following:
- possible increase in profitability;
- reducing competition in the market;
- potential decrease of expenses;
- exchanging experience and technological advances between the consolidated organizations;
- new possibilities in general.
One more important form of consolidation happens in the banking sphere. Loan extension is one of the main banking activities, and in the consumer banking field there’s a possibility to combine all client’s debts into a single unit. The main advantage of that is the perspective of paying off all the loans simultaneously with one fixed payment per period instead of several ones, and the final interest rate of the consolidated debt might turn out to be lower than the initial rates.
Consolidate: Technical analysis
In technical analysis and trading, when security prices consolidate, it means that they move up and down in a distinct pattern of levels. It is usually represented by rhythmic but short rising and falling of the price, never going out of the pattern levels, which typically indicates a period of indecisiveness in the market. This period ends when the price finally leaves the corridor and breaches upper or lower level, that usually happens after the news release presenting facts affecting the assets or securities in question.