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Comprehensive income is usually defined as a shift in the net assets of a company that can be attributed to events outside the control of the owners. Some examples of events that help to shape the nature of comprehensive income are changes in operating expenses, a profit or loss that is realized by the sale of property, and any other transaction that is usually not classified as net income. Tracking comprehensive income can provide a corporation with valuable information about the overall financial stability of the business.
Measuring income using this model is an excellent way to assess the current value of an owner’s interest in the company. That is because comprehensive income is measured on a basis that breaks down the transactions and events in a manner that shows the impact on each share in the control of the owner. In this sense, comprehensive income also helps to define the current status of the owner’s equity in the business as well.
The measure of income using the comprehensive income model helps to identify the impact that any diluting factors have on the status of the company, and the equity that shareholders have in the business. In addition, using the basic formula of determining comprehensive income provides an easy to understand snapshot of how the company has fared since the last analysis. Since comprehensive income is simply comparing the book value per share at the end of the last period to the book value at the end of the current period, the approach makes it very easy to identify an increase or decrease.
Noting a decrease in book value per share is not necessarily a sign that the company is in financial trouble. Some upward and downward movement in comprehensive income is expected from one period to the next. However, if the general trend for several periods is for the level of comprehensive income to decrease, this should be taken as an indication that the company needs to address some issues with the operation of the company.