What is consolidation: definition and main essence

The word consolidation comes from Latin con - together, solido - strengthen. And this means strengthening something, uniting, uniting. In economic terms, it implies the merger of two or more firms, companies.

Often, this term can be found on the currency market, where consolidation is presented in the form of a procedure for analyzing the situation on the market. This concept can show the movement of the lateral trend with a small amplitude of the internal movement of a certain price corridor.

What is consolidation from the position of the foreign exchange market

Another definition of consolidation is the stabilization of prices in a small range after it has been raised or lowered.

In the currency market periods and models of consolidation can "explode", which allows you to get a good profit. It is trade on consolidation models that provides traders with such advantages. First, the initial position can be kept for a short time, thereby reducing the risk of position delay at a higher interest for moving to another position the next day. Secondly, when a trader follows strict capital management requirements, he has all chances to make a profit much higher. However, without some skills in financial management, the trader may have some problems.

The application of consolidation in the economic sphere

The economic sphere better than all other areas of functioning of economic entities makes it clear what consolidation is. Especially if the organization and its affiliates are on consolidated accounts, then when compiling it, it is necessary to consolidate (reduce) financial statements line by line with the main enterprise and branches using the algebraic composition of the corresponding items of revenues, expenditures, assets and liabilities.

Financial consolidation is accurate and complete information about a group of enterprises as a single economic unit. At the same time, an important aspect in the formation of such reports is the determination of the share in profit and loss, the results of the activities of the branches in the reporting period. Consolidation of assets should be reflected in the respective statements for the same period. If the reporting dates do not coincide, the branches prepare another additional financial report in accordance with the date of the parent enterprise.

Methods of formation of consolidation

1. Full: all assets of the branches are consolidated, and minority rights are reflected in the consolidated balance sheet. Used for branches that were formed using such methods: mergers or acquisitions.
2. Proportional: consolidation of assets is carried out only for those objects that are in the possession of participants in joint activities. At the same time, the minority's share in the financial statements is not reflected. Basically, this method of consolidation is used to complete reporting on joint activities.
3. Share participation: this method most graphically shows what consolidation is. It is used mainly in associated companies.

In order to fully understand what consolidation is, it is necessary to consider its stages:

• Calculation of goodwill and accumulated capital;
• Elimination of intra-group transactions;
• Calculation of the proportion of the minority;
• Direct report generation.