Statement of Comprehensive Income | Items | Colgate Example

We all know about Consolidated Income Statement. How about Consolidated Statement of “Comprehensive Income”?

We note from above that Colgate Reported a Net Income of $2,596 million in 2016. however, its total Comprehensive Income including noncontrolling interests was $2,344 million in 2016. Does this help?

In this article, you will know what consolidated statement of comprehensive income is and how it is useful to you as an investor.

• What is Consolidated Statement of Comprehensive Income?
• Format for Statement of Comprehensive Income?
  • #1 – Translation Adjustments
  • # 2 – Pension & Other Benefits
  • #3 – Available for Sale Securities
  • #4 – Cash Flow Hedges
• Consolidated Statement of Comprehensive Income format
• Why reporting of Comprehensive Income every Quarter?
• Things you need to know as an investor
• In the final analysis

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What is Consolidated Statement of Comprehensive Income?

To understand the consolidated statement of comprehensive income, first, we need to pay heed to the opposite of comprehensive income. The opposite of comprehensive income is narrowed-down income or income from its main operation.

Below is the snapshot of Consolidated Income Statement of Colgate.

source: Colgate SEC Filings

 

We note that Colgate’s Net income including noncontrolling interests is $2,586 million. As we see from above that the Income Statement contains the revenues and expenditures related to the main operations of the business.

What about those items (gains/losses) that are excluded from the Income Statement? Where do they get adjusted?

Let us understand this concept with the help of a basic statement of comprehensive income example.

Given below is the balance sheet of Company XYZ.

Total Assets = Total Liabilities = $1300

#1 – Inventory Writedown from $300 to $200

• If the value of the inventory decreases from $300 to $200, then the Total Assets amount in the balance sheet will decrease to $1200.
• How does the Total Liabilities figure gets adjusted? Answer: Through the Income Statement -> Retained Earnings
• The inventory write-down of $100 ($300 – $200) will flow from the Income Statement.

In this example, we have assumed taxes to be zero. The above case is for gains and losses flows through the income statement.

Lets now take a different case where such gains and losses do not flow through the Income Statement.

#2 – If the Marketable Securities (Available for Sale) decreases to $100

• If the value of the Available for Sale Marketable Securities reduces from $200 to $100, then the Total Assets amount in the balance sheet will decrease to $1200
• However, the Total Liabilities is still at $1300. Accounting rules don’t allow us to adjust this unrealized loss on Available for Sale securities from the Income Statement. Instead, they are adjusted directly in the Shareholder’s Equity Section through “accumulated other comprehensive income”.

Two takeaways from the above statement of comprehensive income examples –

• Gains and Losses on items that are not allowed to flow from the income statement are included in the Statement of Comprehensive Income.
• Other Comprehensive Income for the period gets added to the Accumulated Other Comprehensive income in the Shareholder’s Equity Section.

Format for Statement of Comprehensive Income?

Comprehensive income connotes the detailed income statement where we will also include income from other sources along with the income from the main function of business.

source: Colgate SEC Filings

As seen from above, consolidated statement of comprehensive income, we have to consider two primary components –

1. Net income or loss from the income statement of the company &
2. Other Comprehensive Income (net of taxes)

Here’s a simple list of items included in “Statement of Comprehensive Income”

#1 – Translation Adjustments

Foreign currency translation gains or losses do not flow through the income statement. Therefore they are included in the Statement of Comprehensive Income. As we see from below, the cumulative foreign currency translation adjustment for Colgate is – $97 million (pre-tax) and – $125 million (net of taxes)

# 2 – Pension & Other Benefits

Following Pension related gains or Losses are included in Statement of Comprehensive Income

• Pension or post-retirement benefit plan gains or losses
• Pension or post-retirement benefit plan prior service costs or credits
• Pension or post-retirement benefit plan transition assets or obligations that are not recognized as a component of the net periodic benefit or cost

We note in Colgate that the Retirement Plan and other retiree benefits adjustments are – $168 million (pre-tax) and – 109 million (post tax).

 

#3 – Available for Sale Securities

Available for sale securities are securities that are available for sale (literally!) and have a readily available market price. At the end of each financial year, companies need to value available for sale securities. Any gains/losses due to the change in valuation is not included in the Income Statement but are reflected in the Statement of Comprehensive Income.

Colgate’s Gains (losses) on available for sale securities is – $1 million (post tax).

#4 – Cash Flow Hedges

Like the list above, unrealized gains and losses from cash flow hedges flow through the Statement of comprehensive income. Colgate Gains (losses) on cash flow hedges included in other comprehensive income is $7 million (pre-tax) and $5 million (post tax).

Consolidated Statement of Comprehensive Income format

Here’s a snapshot of how you need to format your consolidated statement of comprehensive income.

Particulars	Year 1	Year 2
Net Income	******	******
Other Comprehensive Income/Loss:
Change in Foreign Currency Translation Adjustment
Available for Sale Investments
Cash Flow Hedge
Other Comprehensive Income/Loss (if any)
Comprehensive Income	******	******

Why reporting of Statement of Comprehensive Income every Quarter?

Now you may ask why it is mandatory for the publicly traded companies to prepare a consolidated statement of comprehensive every quarter?

Here’s the explanation.

• First of all, these reports are important because they are compared with the last quarter’s report and also with last year’s same quarter so that SEC can understand if any discrepancy lies in the statement or not.
• Second, the ultimate aim of these reports is to help the investors to know better so that they can make more informed decisions about which company they should invest into and which company they should avoid investing into completely.

Things you need to know as an investor

Even after look at the consolidated comprehensive income statement, there are few things you should consider as an investor. Here are they –

• First of all, no single document can tell you the whole thing about a company. To be sure, you need to get your hands on an annual report of the company (to shareholders), the annual report (under 10K) and the consolidated income & comprehensive income statement (under 10Q). Also, checkout SEC Filings Types
• If you appreciate the complexities and technicalities of finance, you will enjoy the detailed approach thoroughly by looking at all of the documents. But, if you are just starting out as an investor, it’s better to learn from someone or hire someone who can help you out with these statements.
• It is recommended that instead of relying only on statements, you should also go for ratio analysis to get a firm grip of how the firm is actually performing. You can start with cash conversion cycle, turnover ratios, DSCR, Interest Coverage Ratios, ROIC etc.

In the final analysis

Consolidated Statement of Comprehensive Income will certainly help. But don’t depend solely on it. Look for other statements and also to get an inner view of the firm, go through their last 10 years of statements and try to see a trend coming forward. This will help you in understanding the risk-return ratio even before investing into the organization.

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