The word consolidation comes from the Latin con - together, solido - I strengthen. And this means strengthening something, uniting, rallying. In economic terms, it implies the merger of two or more firms, companies.
Often this term can be found in the foreign exchange 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 a side trend with a small amplitude of the internal movement of a certain price corridor.
What is currency market consolidation ?
Another definition of consolidation is stabilization of the price in a small range after its increase or decrease.
In the foreign exchange market, periods and models of consolidation can “explode”, which allows you to get good profit. It is trade on consolidation models that provides traders with such advantages. Firstly, the initial position can be held for a short time, which reduces the risk of delaying the position at a higher percentage for transferring to another position the next day. Secondly, when a trader follows the strict requirements of money management, he has every chance of making a profit much higher. However, without some financial management skills, a trader may have certain problems.
Application of consolidation in the economic sphere
The economic sphere is better than all other areas of functioning of business entities that makes it clear what consolidation is. Especially if the organization and its branches are on consolidated statements, then when preparing it, it is necessary to consolidate (reduce) financial statements line by line in the context of the main enterprise and branches using the algebraic addition of the corresponding items of income, expenses, 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 statements is the determination of the share in profit and loss, the results of activities of branches in the reporting period. Asset consolidation should be reflected in the relevant statements for the same period. If the reporting dates do not coincide, the branches prepare an additional financial report in accordance with the date of the parent company.
Consolidation Methods
- Full: all assets of the branches are consolidated, and minority rights are displayed in the liabilities of the consolidated balance sheet. Used for branches that were formed by the following methods: mergers or acquisitions.
- Proportional: asset consolidation is carried out only for those objects that are owned by participants in joint activities. At the same time, the minority share in the reporting does not find its reflection. Basically, this method of consolidation is used when filling out reports on joint activities.
- Equity: this method most clearly shows what consolidation is. Used mainly in associates.
For a full understanding of 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.