Comprehensive Income

April 8, 2009

Comprehensive Income is typically defined as the change in the net assets of a company that are not caused by the actions of the owner, or owners of the company. In the Financial Accounting Standards Board, or FASB, Comprehensive Income is defined as “the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.” The fluctuations in the foreign exchange market can cause a shift in the net assets of the company. The losses and gains made in the foreign exchange are a prime example of Comprehensible Income.


The comprehensive income is a very volatile component of the company’s balance sheet in relation to the net income of the company. For some years, the comprehensive income may well exceed the net income, whereas in some other, it may lag behind significantly. Since the fluctuations in the net assets of the company are beyond the control of the owners, the comprehensive income cannot be predicted using the same methods used to determine net income.

Comprehensive income is a valuable tool to assess the financial stability of a company. Comprehensive income provides you the sum of the total income and other assets that bypass the income statement. These include items like an unrealized holding gain, or a profit or loss that is realized by the sale of property, or any other transaction that is usually not classified as net income. And, although these items are not part of net income, they are important enough to be included in comprehensive income. This is why comprehensive income is a better tool to get a bigger, more comprehensive picture of the organization as a whole.


Additionally, if you measure the comprehensive income of a company, you get a good assessment of the current status of the owner’s equity in the business. Comprehensive income measures the current value of the owners’ assets in the company by attempting to measure the sum total of the impact of all financial and operating events on the company and its assets. The measurement of Comprehensive income involves breaking down the transactions and events in a manner that shows their impact on each share in the control of the owner.

The measure of comprehensive income allows analysts to measure the effect of dilution and options on the status of the company, the assets of the company, and thus, the equity that shareholders have in the business.


Measuring comprehensive income makes it very easy to compare the progress of a company year after year. All that needs to be done is a comparison of the year end book value per share from two financial periods. Although it is important to remember that upward and downward movement in comprehensive income are normal and are not to be treated as a sure sign of a company’s financial status.

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Written by Uncle Sam · Filed Under Income 

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