Condensed Financials: What They are, How They Work

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

What Are Condensed Financials?

Condensed financial statements are a summary form of a company's income statement, balance sheet, and cash flow statement, usually combined into a single document. These shortened statements are created to provide a quick overview of the company's financial status with limited detail, and often for internal use only.

Items that would normally receive several line items are thus condensed into just one line, such as cost of goods sold (COGS) or retained earnings. Disclosures and footnotes that would be found in full financial statements are eliminated.

Key Takeaways

• Condensed financials are a compendium of a firm's financial statements, all found together in a single document, and with limited detail.
• This cursory view of company financials helps provide an overview of the business structure and income performance for internal use or the provide to auditors.
• Condensed financials must conform to generally accepted accounting principles and standards, and may be provided as a stop-gap until complete financial statements are made available.

Understanding Condensed Financials

Many businesses prepare condensed financials throughout the year in anticipation of their quarterly or annual reports, and are often intended for purposes of internal or external auditing, rather than for investor or analyst use.

Consolidated financial statements will present the same overall financial picture of the company as the full financial statements, but items that would normally be several line items in the full version will be condensed down to one line for brevity. For example, the condensed financial statement will only show one line for "total revenue," while the full earnings report will show revenue by operating division, products, services, interest, and any other source of revenue.

When examining a condensed set of financials, you should be extra critical when looking at each line item. The lack of detail may make the analysis simpler, but that same lack of detail can mask large fundamental problems within the firm. It may be a good idea to receive a full set of financial statements to review as well, as the full statements will contain disclosures and line items that may have been eliminated from the condensed version.

Other Considerations

The condensed financial statements must adhere to Generally Accepted Accounting Principles (GAAP) and may at times be provided to interested parties in lieu of full financial statements. The auditing team conducting an audit of the company will usually view condensed financial statements along with full financial statements for a full picture of the company's financial standing. Any important disclosures or key pieces of information that a company firm chooses to omit from their condensed financials must subsequently appear in the full versions of the balance sheet, cash flow statement, and income statement provided alongside the condensed version.