Stand-alone financial statement

Every company is its own legal entity. This stays true even when a bigger firm owns it. Jio Platforms is a separate entity from Reliance. Toyota Kirloskar Motor is a separate entity from Toyota Motor Corporation, Japan.

So each company must first draw up its own financial statement. That statement covers only what that one entity did. It is called the stand-alone financial statement.

A stand-alone statement leaves out everything a company's subsidiaries earned. The workbook's own illustration: Toyota Motor Corporation's stand-alone statement shows only its sales in Japan. None of the group's sales in China, India, North America or anywhere else, done through subsidiaries, appear in it.

SEBI's listing rules set the rhythm for both statements. Listed companies must publish consolidated financial statements annually, but publishing stand-alone results quarterly is the compulsory minimum. Some companies choose to publish consolidated numbers every quarter too, but the rule only requires it once a year.

A stand-alone statement still matters even where consolidated is generally preferred, for one specific reason: if a subsidiary cannot pay dividends up to the parent — say, under a foreign country's capital controls, or a debt covenant — the parent's own stand-alone position shows whether it can look after itself in a crisis, without relying on the subsidiary's cash.

Bharti Airtel Limited's stand-alone financial statement reports only the Indian parent entity's own operations. When Bharti Airtel acquired 100% of Tigo Rwanda Ltd for Rs 3,200 crore in FY2018, none of Tigo Rwanda's revenue, profit or the Rs 362 crore of goodwill recognised on the deal shows up in Bharti Airtel Limited's stand-alone statement. An analyst reading only that statement would not see the Rwanda business at all.

It appears only in Bharti Airtel's consolidated financial statement, which combines the parent with every company it controls.

Chapter 8, section 8.2 (Stand-alone financial statement and consolidated financial statement), uses Toyota and Bharti Airtel as its own worked examples. Expect a question on which statement SEBI requires quarterly versus annually, and on why an analyst covering a group with active subsidiaries still checks the parent's stand-alone numbers.

• Stand-alone is the quarterly-mandatory statement; consolidated is the annual-mandatory one. Candidates often assume consolidated, being the fuller picture, is also required more often. It is the other way round.
• Consolidated is usually preferred for analysis, but stand-alone still matters when a subsidiary cannot upstream dividends to the parent.
• Control, not a fixed ownership percentage, decides whether a subsidiary's numbers enter the parent's consolidated statement — see consolidated financial statement for that threshold.