Comprehensive Income
The last section in a statement of shareholder’s equity presents comprehensive earnings (loss), which reconciles net income as reported on the income statement with other current period results that did not appear on the income statement but nonetheless affected the value of shareholders’ equity. The notion of comprehensive income is a relatively new one. Under U.S. GAAP, reporting comprehensive income has only been mandatory since 1998. Under IAS, the components are reported in the statement of equity, but a “comprehensive income” figure is not currently required but can easily be determined.
As an example, consider the reconciliation of comprehensive earnings for AT&T:
Net income appears on the income statement, and after dividends are paid out the remainder appears on the balance sheet as an addition to retained earnings. The other components, pension liability adjustments and “other” adjustments, were changes that accounting rules permit to bypass the income statement.
Examples of items that might affect comprehensive income (but not net income) include unrealized net loss from marking available-for-sale investments to market value, foreign currency translation adjustments, adjustments resulting from changes in the value of pension plan assets needed to fund pension plan liabilities, net losses on derivative activities constituting cash flow hedges and net investment hedge gains and losses.
For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
