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What Is Comprehensive Income and Who Does It Apply Too?

by Brett Backues on September 27, 2016

What Is Comprehensive Income and Who Does It Apply Too?
Keeping careful watch of company income from year to year is important in gauging the success and growth of a company of interest. There are many different ways an investor or shareholder can look at income when evaluating a company that go beyond simply considering a company's net income or net loss. Certain types of income that a company can have over a given year might not necessarily be factored into net income/net loss because they were not made in the normal course of the company's business dealings. 
 

What is comprehensive income?
Comprehensive income distinguishes between the net income or net loss of a company and the additional income or loss that could result from operations outside of the company's standard business dealings. Comprehensive income is typically defined as all of the revenues, gains, and expenses that have impacted stockholder equity in the company over a given period of time. 

 

How is comprehensive income reported?
In order to analyze a company's comprehensive income as distinct from net income/loss, it's necessary to consult the stockholders' equity information on the company balance sheet. If there is comprehensive income that is different in amount from net income/net loss, this must be reported as "other comprehensive income" and the company is expected to prepare a statement of comprehensive income. 

 

What are some examples of income sources for a company that lead to the need to distinguish "other comprehensive income"
There are many potential sources of other comprehensive income. While it's very common for a company to have nothing but net income/net loss for a given year, it's also not uncommon for companies to accumulate other comprehensive income. Other comprehensive income can come from available-for-sale investments that a company had during a particular year. Also, a company could acquire other comprehensive income through financial instruments such as hedge funds and derivatives. Another possibility is that a company could have other comprehensive income through translation adjustments on foreign currency transactions or post retirement benefit plans that lead to unrealized gains or losses in a given year. 


Distinguishing income/loss causes that are not considered other comprehensive income is as important in understanding the concept as distinguishing income/loss causes that are considered other comprehensive income. It's important to note that a company does not have to report losses or gains from buying or purchasing capital stock as other comprehensive income. Also, a company's declaration of dividends for a given year does not impact the amount of other comprehensive income it has earned over the year. 
 

Who should be concerned with comprehensive income and what significance does it have from a business perspective?
Comprehensive income is particularly of interest to a company's shareholders because it impacts the value of each share. A declaration of comprehensive income by the income is necessary from the perspective of the shareholder so that he or she knows the value of his or her ownership stake in the company. 

 

How does the concept of comprehensive income relate to accounting?
The definition of comprehensive income is described by the Financial Accounting Standards Board. This organization explains that comprehensive income refers to any change in equity a business experiences over a certain period due to transactions and any non-owner sources. 

When it comes to accounting, other comprehensive income may not be reported on a company's income statement. This is permitted because the additional income has not yet been realized. However, companies are required to disclose information on documentation detailing shareholder's equity. There will be a category of accumulated other comprehensive income for a given year or financial quarter on a statement of shareholder's equity where a company must report any other comprehensive income to shareholders. 
 

How does the concept of comprehensive income relate to financial analysis?
The comprehensive income distinction refers to the sum total of any changes to an owner interest in a company over a given period. Usually, this change will be broken down to a per-share amount in financial analysis to understand how it may impact individual investors and shareholders. A shareholder in a company is indifferent to any equity transactions that have taken place that don't alter the value of an individual share, so comprehensive income ignores these effects. 


When comprehensive income is calculated the value of each share of the company at the end of a given financial period is reconciled with the value at the start of that period. To calculate comprehensive income this way, the original shareholder equity is taken. Dividends paid and share buy-backs are subtracted. Any shares issued is added to the resulting amount. If the resulting amount is subtracted from the shareholders' equity at the end of the period, the comprehensive income that the company achieved over the period will be calculated. 
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