Statement of Comprehensive Income

Updated on April 4, 2024
Article bySayantan Mukhopadhyay
Edited bySayantan Mukhopadhyay
Reviewed byDheeraj Vaidya, CFA, FRM

What is the Statement of Comprehensive Income?

Statement of Comprehensive Income refers to the statement which contains the details of the revenue, income, expenses, or loss of the company that is not realized when a company prepares the financial statements of the accounting period, and the same is presented after net income on the company’s income statement.

We note 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.

Statement of Comprehensive Income

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Source: Statement of Comprehensive Income (wallstreetmojo.com)

How to Interpret the Statement of Comprehensive Income (with Examples)?

To understand this, we must first 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 the Consolidated Income Statement of Colgate.

Colgate - Income Statement

source: Colgate SEC Filings

We note that Colgate’s Net income, including noncontrolling interests, is $2,586 million. As we see above, the Income Statement contains the revenues and expenditures related to the business’s main operationsOperations Of The BusinessBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more.

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.

Comprehensive Income - Balance Sheet

Total Assets = Total Liabilities = $1300

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#1 – Inventory Writedown from $300 to $200

Inventory Writedown Adjustments

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

Let’s take a different case where such gains and losses do not flow through the Income Statement.

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

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.

Statement of Comprehensive Income Explained in Video

 

Format for Statement of Comprehensive Income

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

Total Comprehensive Income

source: Colgate SEC Filings

As seen from the above statement, 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 taxesNet Of TaxesThe term "net of taxes" refers to the amount remaining after deducting taxes. Net of taxes = Gross amount – Tax amountread more)

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

#1 – Translation Adjustments

Foreign currency translation gains or losses do not flow through the income statement; therefore, they are included. As we see below, the cumulative foreign currency translationForeign Currency TranslationThe accounting method in which companies with international businesses translate the financials of their international subsidiaries into their domestic or functional currency in order to meet financial reporting requirements is known as foreign currency translation.read more adjustment for Colgate is – $97 million (pre-tax) and – $125 million (net of taxes)

Comprehensive Income - Translation Adjustments

# 2 – Pension & Other Benefits

Following Pension related gains or losses are included –

  • 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).

Pension & Other benefits

#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 the available for sale securitiesAvailable For Sale SecuritiesAvailable for sale Securities are the company's debt or equity securities investments that are expected to be sold in the short run and will are not be held to maturity. These are reported on the balance sheet at fair value, and any unrealized gains or losses on these securities are reported in other comprehensive income as a part of shareholders' equity rather than in the income statement.read more. Any gains/losses due to the change in valuation are 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).

Available for Sales Securities

#4 – Cash Flow Hedges

Like the list above, unrealized gains and losses from cash flow hedgesCash Flow HedgesA cash flow hedge is an investment method to control and mitigate the sudden changes in cash inflow or outflow to the asset, liability, or the forecasted transactions. It can arise due to interest rate changes, asset price changes, or foreign exchange rates fluctuations.read more flow through the Statement of comprehensive income. Colgate Gains (losses) on cash flow hedges included in other comprehensive income are $7 million (pre-tax) and $5 million (post-tax).

Cash Flow Hedges

Consolidated Statement of Comprehensive Income format

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

ParticularsYear 1Year 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 Report Statement of Comprehensive Income every Quarter?

Now you may ask why the publicly traded companiesPublicly Traded CompaniesPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.read more must prepare a consolidated statement of comprehensiveness every quarter?

Here’s the explanation.

  • First of all, these reports are important because they are compared with the last quarter’s report and last year’s same quarter so that the SEC can understand whether any discrepancy lies in the statement.
  • 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 in and which company they should avoid investing in completely.

Things you need to know as an investor

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

In the final analysis

A statement of comprehensive income is the overall income statement that consolidates the standard income statement, which gives details about the repetitive operations of the company, and other comprehensive incomeOther Comprehensive IncomeOther comprehensive income refers to income, expenses, revenue, or loss not being realized while preparing the company's financial statements during an accounting period. Thus, it is excluded and shown after the net income.read more, which gives details about the non-operational transactions such as the sale of assets, patents, etc. But don’t depend solely on it. Look for other statements to get an inner view of the firm, go through their last ten years of statements, and try to see a trend coming forward. It will help you understand the risk-return ratio even before investing in the organization.