What Is Comprehensive Income?

Comprehensive income is the variation in the value of a company's net assets from non-owner sources during a specific period. It includes net income and unrealized income. Unrealized income can be unrealized gains or losses on, for example, hedge/derivative financial instruments and foreign currency transaction gains or losses. Comprehensive income provides a complete view of a company's income, some of which may not be fully captured on the income statement.

Understanding Comprehensive Income

Comprehensive income is the sum of a company's net income and other comprehensive income. For companies, comprehensive income sheds light on changes in equity. Since it includes net income and unrealized income and losses, it provides the big picture of a company's value.

For investors, comprehensive income is useful because the information can help their decision-making where the company's feasibility as a potential investment is concerned.

What's Included

The purpose of comprehensive income is to show all operating and financial events that affect non-owner interests. As well as net income, comprehensive income includes unrealized gains and losses on available-for-sale investments. It also includes cash flow hedges, which can change in value depending on the securities' market value, and debt securities transferred from 'available for sale' to 'held to maturity'—which may also incur unrealized gains or losses. Gains or losses can also be incurred from foreign currency translation adjustments and in pensions and/or post-retirement benefit plans.

Income excluded from the income statement is reported under "accumulated other comprehensive income" of the shareholders' equity section. 

Income from non-owner sources increases the value of a company. However, since it is not from the ongoing operations of the company's normal line of business, it is not appropriate to include it in the traditional income statements.

Comprehensive income excludes owner-caused changes in equity, such as the sale of stock or purchase of Treasury shares.

Statement of Comprehensive Income

A company's income statement details revenues and expenses, including taxes and interest. Its bottom line is net income. However, net income only recognizes earned income and incurred expenses.

A statement of comprehensive income, which covers the same period as the income statement, reflects net income as well as other comprehensive income, the latter being unrealized gains and losses on assets that aren't shown on the income statement. The statement of comprehensive income gives company management and investors a fuller, more accurate idea of income.

Net Income

The net income section provides information derived from the income statement about a company's total revenues and expenses. The amount is adjusted to account for non-owner activities. Net income is arrived at by subtracting cost of goods sold, general expenses, taxes, and interest from total revenue.

Other Comprehensive Income

The other comprehensive income section provides information on the company's unrealized gains, losses, revenue, and expenses. Here are some examples of other comprehensive income that you may find on the comprehensive income statement:

• The unrealized gains and losses on securities that a company has for sale
• Gains and losses on cash flow hedge instruments
• The unrealized gains and losses on debt securities that result when they're transferred from the 'available for sale category' to the 'held to maturity category'
• Foreign currency translation adjustments
• Foreign currency transaction gains and losses related to a foreign investment hedge.
  
• Pension or post-retirement benefit plan gains or losses

At the end of the statement is the comprehensive income total, which is the sum of net income and other comprehensive income.

In some circumstances, companies combine the income statement and statement of comprehensive income, or it will be included as footnotes. However, a company with other comprehensive income will typically file this form separately. The statement of comprehensive income is not required if a company does not meet the criteria to classify income as comprehensive income.

Comprehensive Income Example

Like other publicly-traded companies, Ford Motor Company files quarterly and annual reports with the SEC. In its first quarter filing for 2023, it published its consolidated statements of comprehensive income, which combines comprehensive income from all of its activities and subsidiaries (featured below).

Pros and Cons of the Statement of Comprehensive Income

The Bottom Line

Comprehensive income is the sum of a company's net income, as recorded on the income statement, and unrealized income (or "other comprehensive income") that is not included on an income statement but is recorded in the statement of comprehensive income.

The statement of comprehensive income displays both net income details and other comprehensive income details. It is appreciated for its more comprehensive view of a company's profitability picture for a particular period.