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What is the difference between Consolidated vs Standalone Financials? Which one should be considered by the investors for the stock analysis. Lets discuss the key differences and solve this consolidated vs standalone dilemma.Solving The Consolidated vs Standalone Financials DilemmaIntroductionWhat is the difference between Consolidated vs Standalone Financials? Which one should be considered by the investors for stock analysis? Many times, retail investors are uncertain if they should look at the consolidated results or standalone results. Lets discuss the key differences and solve this consolidated vs standalone dilemma.The main difference between consolidated and stand-alone financial statements is that the consolidated form reports all activities of a company and its subsidiaries as a combined entity, while standalone financial statements report these findings as a separate entity.Consolidated vs Standalone Financials | Which One To Consider?Understanding Consolidated vs Standalone as an Business Entity1. Standalone EntityHere, Standalone results represent the activities of only parent company as a single entity and do not include the performance of its subsidiaries.Certain subsidiaries act as entirely individual entities and listed as a seperate company, the holding company has % stake in the its listed subsidiaries.Example : HDFC Ltd - In case of HDFC Ltd, we should consider the standalone financials, as its key subsidiaries like HDFC Bank Ltd, HDFC Life Insurance Ltd and HDFC asset management company Ltd are listed as a seperate entity on NSE as well as BSE. Here, we can do the detailed stock analysis of the HDFC Ltd’s listed subsidiaries – HDFC Bank, HDFC Life Insurance Co. and HDFC AMC as their no direct business intervention with HDFC Ltd. Being listed entities, these companies’ financial performance statements are mandatorily published individually for th investors. So, while analyzing the parent company, HDFC Ltd we should consider its standalone results only.HDFC Ltd – Key Subsidiaries & Associate Companies2. Consolidated EntityWhen a new company forms, it is a single entity. It will only have standalone performance. As the company grows, they may expand the business into different geographies or acquires other companies.If the company expands itself in a new country, the Indian company may need to create a separate company for the region. The newly formed company becomes the subsidiary of the parent listed company.Similarly, if a company acquires another company, it becomes the subsidiary of the company. Depending on the acquisition by the company, it may become a wholly-owned subsidiary or even a partly hold subsidiary.Consolidated financial statements are drawn up when the individual financial statements of all subsidiary companies are combined with the standalone financial statements of the holding company.Thus, Consolidated financial statements are the combination of financial statements of a parent company and its subsidiaries.Consolidated results reflect a true financial position and they provide a picture of the overall health of an entire group. Any revenue or profit earned by the parent company that is an expense of a subsidiary is excluded from the financial statements.Example : L&T Ltd Larsen & Toubro Ltd is having a diversified business portfolio, which includes many businesses like Construction, Engineering, Manufacturing, Technology and many more.Therefore, which performing stock analysis of L&T Ltd, investors should always consider its consolidated financial statements, where the financials statements of its all subsidiaries and associate companies are combined with the parent company – L&T Ltd.Always refer consolidated financials of L&T Ltd in financial analysis and while calculating price to earnings ratio (PE ratio), Return on Capital Employed (ROCE), Return on Equity (ROE), Debt of equity ratio (DE ratio), analyzing investments of the companies etcL&T Ltd – Key Subsidiaries & Associate CompaniesSolving The Consolidated vs Standalone Financials Dilemma – What Should Investors Do?For a company having a diversified business presence and the business intervention of parent company in its subsidiaries (like L&T Ltd), investors should always refer the consolidated financial statement. Consolidated result gives a true picture about the financial position and business performance of any company. One of the strongest arguments in favor of consolidated results is that it presents the financials of a company and its subsidiaries as a single economic unit. Investors can easily find out the business health and efficiency of not only the standalone entity but also its subsidiaries at a glance.Whereas, one should consider standalone financial statement for the companies like HDFC Ltd, where there is no direct business-related intervention into its subsidiaries and associate companies. In such case, the best way would be to look at the standalone numbers of the parent company and its subsidiaries and assess their financial performance individually.

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Some answers already clarifying the difference between write off and waiver.However, I will make an attempt to address this issue fundamentally so that it is accessible to the most of the audience.Only stating and explaining that write off is not waiver is not enough for this question. All the newspapers will also reiterate the same.Those who do not have an accounting background will face difficulty in understanding about this issue, so I’ll discuss about all the concepts related to the write off. What is done before writing off an advance.Body Corporate and it’s FeaturesFinancial StatementsNon-performing AssetsProvisioning of NPAsThen, I will handle this issue as asked in the question separately in the light of the various concepts discussed.It is quite clearly seen from the fact that people are basing their conclusions about this on the incorrect premise that it is related to demonetization. Also, the opposition parties are making their attempts to squeeze every bit of opportunity to delude and confuse others with regard to this issue.So, a clarification is necessary here.The general audience is not aware of the basic accounting aspects related to provisioning of Non-performing Assets (NPA) and NPAs itself which is related to the Advances of the Bank.Company, Features and other aspectsThe Banking Company is a special type of entity which is a Body Corporate which means it has it’s separate existence. Just like we exist as humans and we carry out trade with each other, enter into contracts and sue each other, the Body Corporate is also considered as a Person(not living understandably) which has the same powers as we have of entering into contracts and suing others in it’s OWN name. Once the Company is registered and incorporated, it has it’s separate existence.This is something very important which needs to be understood regarding Body Corporate.The Proprietorship business does not have any legal identity in the eyes of law so even if you are operating a Snacks corner as a Sole Prop, the person responsible for the acts of the Business will be the person owning the business, unlike the Company is responsible for the acts performed by the Management.However, as it is very evident that Body Corporate cannot carry out the business by itself, it is run by a group of people.When the Corporation comes into picture, we recognize the owners as the Shareholders of the Company. These Shareholders have entrusted their responsibility of managing the Company with the Board which is appointed at every General Meeting.Financial StatementsSo, in order to inform the Shareholders about the performance of the Company, the Management institutes a system for preparation of Financial Statements which contains Balance Sheet, Profit and Loss A/C, Cash Flow Statement,etc.So, the shareholders are able to gauge whether their Investment is used productively by the Company via the details stated in Financial Statements. The Shareholders are not directly involved in managing the Company so the Annual Report is presented to the Shareholders each year.Also, Financial Statements are prepared based on Double-entry and Accrual systemSo, we come to know how important are Financial Statements and their role in Financial Reporting and informing the Shareholders.Banking Company - Accounting aspectsSo, what is the peculiarity when it comes to Banking business - it has majority of it’s assets in the form of ‘Advances’ which represents the Loans given for various purposes apart from Assets like Investments and Fixed Assets,etc.The Banking Company is governed by separate statute Banking Regulation act, 1949 which lists it’s separate Format of Financial Statements(different than required for other Companies to which Companies act, 2013 applies)So, it has separate presentation and disclosure of it’s Assets and Liabilities.Non-Performing AssetsSo, here the Advances (as listed above) are referred to as Assets as they belong to the Assets category in the Balance Sheet.Whenever, a certain time-limit(90 days) elapses after a default being made, then the Bank treats the Advance as Non-Performing which essentially means that the loan has stopped generating income for the Bank.So, what will the Bank do by treating an Advance as a Non-performing Asset?Inform it’s shareholders regarding those Non-performing Assets, so that they get a fair idea along with it’s other stakeholders. It is also an indicator of Bank performance.It needs to create a Provision on these assets depending on their period of continuing default, whether the asset is secured or unsecured, whether there’s any guarantee by ECGC/DICGC.Remember, the Advance is still recognised by the Bank, though it is Non-performing.NPA ProvisioningThe Banks need to create a Provision on it’s NPAs depending on the classification of the NPA. Non Performing Assets (NPA).The asset has already crossed the default of 90 days and has been declared as non-performing. So, the Bank will create a provision for the NPA.So, Why do we require to provide for such Advances?To provide for anticipated and known lossesTo present correct Profits and Financial Statements.So, a provision is created on NPAs with the understanding that such debtors may become irrecoverable in the future, so it is better to reduce the profit in the current year with regard to such anticipated loss in the future. This is based on the fact that it is better to show reduced profits to shareholders by providing for the losses in the future in the current year itself.It is done to inform shareholders beforehand of the losses that may arise in the future so that they don’t base their decisions on overstated or excessive profits without considering the possible losses.It is just like we expend less when we feel that there might be a big expense or a loss in the future.The provision, in fact, reduces the figure of profit and not the figure of divisible profit.So, RBI orders the Commercial Banks to create provisions on it’s NPAs for the above purposes.Simply statedBank does not wait for the borrower to default, as soon as it sees the conditions of default(meaning the borrower is exceeding his default period) , it starts creating provision, meaning reducing a certain percentage of it’s loan from the profits. It recognises the loss now because it feels that the borrower will default in the future.Refer the link given under this section, to know how the Banks create provisions on NPAs as the period of default increases. The exact percentages are mentioned therein.SBI writing off Loans of Willful defaultersTo write off. When we write off, we remove/write off the Advances as shown in the Balance Sheet. This is done by the Bank to demonstrate to it’s shareholders that this debtor/borrower has become worthless and our chances of recovering anything from him are slim. This is an accounting aspect which is done by writing off the debtors/advances.And, remember the provision we created earlier because this advance was NPA as ordered by RBI, was for the same reasons.The Bank classifies it’s Advances regularly to disclose the current and precise situation of the loans.So, writing off is done by the Banks in order to state a true and fair view, to reconcile it’s actual state of affairs with that shown in the books. Also, it adds to incremental tax liability on the Bank’s part if it doesn’t write them off.When you treat an asset as NPA, you create a provision from the profits, this reduces the profits from the current year. As profits reduce, the tax liability also reduces.When will I write off an asset in ordinary circumstances?When the chances of recovery are slim and negligible, that is in cases like insolvency of the debtor due to various circumstances.The Issue at handThus, in this case, SBI has written off Advances with Vijay Mallya’s Kingfisher topping the list because of the specific nature of his case. The fact that he was declared as absconding and all his property is seized are also notable circumstances.What I understand that it is not just an accounting whim which has no implications. It speaks a lot about the situation of the loans. Why is the bank in such a position that it has to write off this loan? Because the debt is not being repaid.This is an attempt by SBI to clean up the Balance Sheet and it has done that by moving the advances to ‘Advance Under Collection Account’ which is a better classification for the loans written off to the tune of 7,016 crore of the 63 willful defaulters including Mallya.The Writing off activity by the Banks does not mean that the bank will pardon the defaulters. It will still try to collect the debts from them. But, if they did not write off those loans from the books, it is gives poor indications to the users of financial statements because those debts are not good and need to be separated from other good loans. So, it is certainly not a ‘waiver’.The Banks can certainly institute court proceedings or sell the debts to third party.For example, there are $10000 worth of Loans and $2000 are worthless, Bank will create provision and write off the amount of the Loans of $2000 and reduce their value in the Balance Sheet, so the fact of such toxic loans is clearly communicated and the profit is correctly reduced, which thereby reduces the tax liability.Hence, there’s no room for having opinions here as such. It is an accounting treatment which is usual and regular and all the entities follow the general Accounting aspects as applicable to it.SBI Chairperson Arrundhati Bhattacharya has also made that clear, Arun Jaitley has made it clear that the loan recovery will be pursued. Raghuram Rajan had also pushed for cleaning up the NPA mess.ReferencesSBI writes off Rs 7,016 crore loans owed by wilful defaulters, including Vijay Mallya’s defunct airlinesSBI Rs 7,000 cr loan 'write off' not a loan waiver: JaitleyCalm Down, Everyone! Here's Why Vijay Mallya's Debt Write-Off Is Not A Waiver