Intercorporate Investments Analysis Implications Addtional limiations of consolidated financial statements Financial statements of the individual companies comprising the larger entity are not always prepared on a comparable basis-these differences can inhibit homogeneity and impair the validity of ratios, trends, and other analyses Consolidated financial statements do not reveal restrictions on use of cash for indiv idual companies--these factors obscure analysis of liquidity Companies in poor financial condition sometimes combine with financially strong companies, thus obscuring analysis Extent of intercompany transactions is unknown unless the procedures underlying the consolidation process are reported Consolidated retained earnings actually available for payment of dividends are difficult to establish unless reported Composition of minority interest (e.g., between common and preferred) cannot be determined from a"combined"minority interest amount in the consolidated balance sheet .o Aggregation of dissimilar enterprises can distort ratios and other relations-for example, current assets of finance subsidiaries are not generally available to satisfy current liabilities of the parent; assets and liabilities of separate entities are not interchangeableIntercorporate Investments Analysis Implications Additional Limitations of Consolidated Financial Statements ❖ Financial statements of the individual companies comprising the larger entity are not always prepared on a comparable basis—these differences can inhibit homogeneity and impair the validity of ratios, trends, and other analyses ❖ Consolidated financial statements do not reveal restrictions on use of cash for individual companies--these factors obscure analysis of liquidity ❖ Companies in poor financial condition sometimes combine with financially strong companies, thus obscuring analysis ❖ Extent of intercompany transactions is unknown unless the procedures underlying the consolidation process are reported ❖ Consolidated retained earnings actually available for payment of dividends are difficult to establish unless reported ❖ Composition of minority interest (e.g., between common and preferred) cannot be determined from a “combined” minority interest amount in the consolidated balance sheet ❖ Aggregation of dissimilar enterprises can distort ratios and other relations—for example, current assets of finance subsidiaries are not generally available to satisfy current liabilities of the parent; assets and liabilities of separate entities are not interchangeable