Group financial statements are often prepared by companies that have several sub-companies under their ownership umbrella. If a parent company owns smaller companies, group financial statements can be used to illustrate what is going on with all of the companies as a whole. This process is typically accomplished by totaling the numbers from each company's financial statements and then making the proper corrections.
Group financial statements are commonly issued by large companies that have ownership rights over multiple other companies. Many times, the parent company will issue group financial statements and individual financial statements for each company. This is done for a variety of reasons, such as showing the overall economic power of all of the companies combined.
Many times, a large business will start a subsidiary company for a reason other than to be profitable on its own merits. For example, the larger company might start another company in a related field just so it can provide a particular product to the parent company. When this happens, the smaller company may not necessarily be profitable by itself. This does not necessarily mean the smaller company is a failure. The parent company may not be concerned with the profitability of the individual company as much as it is concerned with the profitability of the group of companies it owns.
Instead of only releasing an individual financial statement for the unprofitable company, the parent company may choose to include it as part of group financial statements that are released. This way, it can be portrayed as part of a profitable group instead of an unprofitable individual company. Many times, when all of the financial numbers from every company in the group are added up, a completely different financial picture starts to emerge.
The process of creating a group financial statement is a little bit more complex than creating a traditional financial statement. The individual who is creating this statement has to have full access to financial information from all of the companies involved. The individual will most likely take the individual financial statements from each company and add up all the numbers from each category within the statements. At that point, the individual will make certain corrections and adjustments to the group financial statement to portray the proper financial picture. In most cases, an investor will be able to get most of the same information from this type of statement that he or she could get from individual statements.