Basic Technical Investment Banking Practice Test

When you merge two income statements, you consolidate by adding like items from each company to show the combined results. The most straightforward items to sum are revenues and operating expenses. Adding revenues reflects the total sales from both entities, while adding operating expenses reflects the overall cost of running the combined business. Taxes aren’t simply added as a separate line because tax expense depends on the combined pre-tax income, which is then taxed under the merged entity’s rules. Other non-operating items or interest would be combined as appropriate, but the primary ones you sum to form the consolidated operating picture are revenue and operating expenses.