What Is Consolidation?
Consolidation in technical analysis refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness, which ends when the asset’s price moves above or below the trading pattern.
In financial accounting, consolidation is defined as a set of statements that presents (consolidates) a parent and subsidiary company as one company.
Key Takeaways
- Consolidation is a technical analysis term used to describe a stock’s price movement within a given support and resistance range for a period of time.
- It is generally caused due to trader indecisiveness.
- A consolidation pattern could be broken for several reasons, such as the release of materially important news or the triggering of a succession of limit orders.
- Accounting-wise, consolidated financial statements are used by analysts to evaluate parent and subsidiary companies as a single company.
Understanding Consolidation
Periods of consolidation can be found in price charts for any time interval, and these periods can last for days, weeks, or months. Technical traders look for support and resistance levels in price charts and then use these levels to make buy and sell decisions. A consolidation pattern could be broken for several reasons, such as the release of materially important news or the triggering of a succession of limit orders.
Support vs. Resistance
The lower and upper bounds of an asset’s price create the support and resistance levels within a consolidation pattern. A resistance level is the top end of the price pattern, while the support level is the lower end.
Once the price breaks through the identified areas of support or resistance, volatility quickly increases, as does the opportunity for short-term traders to generate a profit. Technical traders believe a breakout above resistance means the price will climb further, so the trader buys. On the other hand, a breakout below the support level indicates the price is falling even lower, and the trader sells.
Accounting Consolidation
In financial accounting, consolidated financial statements are used to present a parent and subsidiary company as one combined company. A parent company may own a majority percentage of a subsidiary, with a non-controlling interest (NCI) owning the remainder. Or the parent may own the entire subsidiary, with no other firm holding ownership.
To create consolidated financial statements, the assets and liabilities of the subsidiary are adjusted to fair market value, and those values are used in the combined financial statements. If the parent and NCI pay more than the fair market value of the net assets (assets minus liabilities), the excess amount is posted to a goodwill asset account, and goodwill is moved into an expense account over time.
A consolidation eliminates any transactions between the parent and the subsidiary, or between the subsidiary and the NCI. The consolidated financials only include transactions with third parties, and each of the companies continues to produce separate financial statements.
Example of Accounting Consolidation
Assume XYZ Corp. buys 100% of the net assets of ABC Manufacturing for $1 million, and the fair market value of ABC’s net assets is $700,000. When an accounting firm puts together the consolidated financial statements, ABC’s net assets are listed with a value of $700,000, and the $300,000 amount paid above the fair market value is posted to a goodwill asset account.
FAQs
consolidation noun [C or U] (BECOMING STRONGER)
the process of becoming or being made stronger and more certain: The company is entering a period of consolidation. Putin announced one of the most sweeping consolidations of presidential power since the fall of communism.
How do you explain consolidation? ›
To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. In financial accounting, the term “consolidate” often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company.
What is a simple example of consolidation? ›
Consolidation of loans is a special form of consolidation. In this process, several loans are combined into one loan. For example, a company that has two current loans with different interest rates can take out a new loan and thereby pay off the other two loans.
What is consolidation in real life examples? ›
In other words, it's when two companies (or more) merge and become one. Many of the world's largest corporations were formed by business consolidation, while more recent examples include Facebook's acquisition of Instagram and Disney's acquisition of Fox.
How do you describe consolidation? ›
Definition. Consolidation refers to an area of hom*ogeneous increase in lung parenchymal attenuation that obscures the margins of vessels and airway walls [1]. Air bronchograms may be present with consolidative area.
What is the meaning of consolidate answer? ›
to combine into a single whole; merge; unite.
How does consolidate work? ›
It combines all of your debts into one payment. It could lower the interest rates you're paying on each individual loan and help you pay off your debts faster. Paying off debts on time or faster can improve your credit score.
What does consolidation at work mean? ›
When you communicate clearly with your team, reassign work strategically, offer support and recognize their efforts, job consolidation — the merging of a vacant position into your group's responsibilities — can go smoothly.
What is the best way to identify consolidation? ›
Look for stocks with low volatility, trading within a narrow price range, and showing reduced trading volume. Technical indicators like Bollinger Bands and RSI can also help identify consolidation.
What is the purpose of consolidation? ›
Consolidation adds together the assets, liabilities and results of the parent and all of its subsidiaries. The investment in each subsidiary is replaced by the actual assets and liabilities of that subsidiary.
Simplify your repayment process by making only one payment every month instead of making separate payments for each loan. This single payment is likely to be a lower amount than the combination of minimum payments required for each separate loan.
What is the basic consolidation process? ›
Seven steps: Preparing consolidated financial statements
- Step one: Understand the purpose and scope. ...
- Step two: Identify reporting entities. ...
- Step three: Gather financial information. ...
- Step four: Eliminate intra-group transactions. ...
- Step five: Adjust for unrealized gains or losses. ...
- Step six: Combine financial statements.
: the act or process of consolidating : the state of being consolidated. 2. : the process of uniting : the quality or state of being united. specifically : the unification of two or more corporations by dissolution of existing ones and creation of a single new corporation. 3.
What are the two main types of consolidation? ›
The 3 Types of Consolidation Accounting
- Type 1: Full Consolidation. For this method of consolidation accounting, the parent company owns more than 50% of the subsidiary. ...
- Type 2: Proportionate Consolidation. ...
- Type 3: Equity Consolidation.
Anywhere there's consolidation, there's merging, joining, and combining. You can see the word solid at the heart of consolidation, and its Latin roots will tell you that it means “to make solid together.” The goal of consolidation is really just that, to combine things in order to make them stronger or more beneficial.
What is consolidate in simple terms? ›
1. : to join together into one whole : unite. consolidate several small school districts. 2. : to make firm or secure : strengthen.
What is another term for consolidation? ›
merger strengthening unification. Strong matches. alliance amalgamation association coalition compression concentration condensation federation fusion incorporation merging reinforcement solidification.
What is the legal definition of consolidation? ›
: to join together into one whole: as. a : to combine (two or more lawsuits or matters that involve a common question of law or fact) into one compare class action NOTE: Consolidation of matters in the federal courts is governed by Rule 42 of the Federal Rules of Civil Procedure.
