Definition:

Consolidated Net Income is the total net income of a parent company and its subsidiaries, after eliminating intercompany transactions and balances, providing a comprehensive view of the entire corporate group's profitability.

Formula:

Consolidated Net Income = Parent Company Net Income + Subsidiaries' Net Income - Intercompany Transactions

How to use the metric:

Consolidated Net Income is used by investors and analysts to assess the overall profitability of a corporate group. It provides insights into how well the parent company and its subsidiaries are performing as a whole, helping stakeholders make informed decisions about investments and management strategies.

Limitations:

One limitation of Consolidated Net Income is that it may obscure the performance of individual subsidiaries, as strong performance in one subsidiary can offset poor performance in another. Additionally, it may not reflect the financial health of the parent company alone, as it includes the results of all subsidiaries.

Applies to:

Consolidated Net Income is applicable to industries with complex corporate structures, such as conglomerates, multinational corporations, and industries with significant subsidiary operations like banking, manufacturing, and retail.

Doesn't apply to:

This metric is less relevant for single-entity businesses or industries where companies typically operate without subsidiaries, such as small local businesses or sole proprietorships, as there are no intercompany transactions to consolidate.

Summary:

Consolidated Net Income provides a comprehensive measure of a corporate group's profitability by combining the net incomes of the parent company and its subsidiaries while eliminating intercompany transactions. It is useful for evaluating the overall performance of complex corporate structures but may obscure individual subsidiary performance.