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Income Statement Consolidation

DCF Workflow

1

Forecast Free Cash Flows

5-10 years of FCF based on operating assumptions.

2

Calculate Terminal Value

Gordon growth or exit multiple beyond projection.

3

Discount at WACC

PV each year's FCF, sum to enterprise value.

4

Adjust to Equity Value

Subtract net debt, divide by shares for per-share value.

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Explore the concept of finance consolidation and its impact on income statements, with a focus on incorporating financial statements of all subsidiaries into the parent company's statements, with this detailed video guide.

In finance terms, consolidation refers to the incorporation of the financial statements of all subsidiaries into the financial statements of the parent company.

Consolidation of financial statements requires the parent company to integrate and combine all its financials to create a standard-form income statement, balance sheet, and cash flow statement, as part of a set of consolidated financial statements.

In this video, we will talk about Income Statement Consolidation.

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To create a consolidated IS we would take the IS values of the investor and the investee and add them together. And then apply transaction effects.

First of all, we need to include only the post-acquisition portion of the investees' revenue and losses into the consolidated IS.

Another transaction effect would be an adjustment of extra interest expense on deal debt and lost interest expense on retired debt.

Also, we would need to adjust the value of synergies from the M&A transaction.

We would need to make step-ups for extra depreciation and amortization on PP&E and intangible assets.

And take into consideration the tax impact of the above.

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Example.

D17=D16*(1-B11)-B7*B8*B10*(1-B11)