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Examples Of Financial Statement Drivers' title='Examples Of Financial Statement Drivers' />Learn about the online accounting and financial management graduate program offered at University of Maryland University College. State of Oregon Division of Financial Regulation. The Importance Of Other Comprehensive Income A companys statement of profit and loss, also known as its income statement, has its drawbacks. For the most part, the statement accurately reflects a companys past profitability, and earnings growth is one of the primary determinants of a firms share price performance, but it remains a subjective measure that is open to manipulation. In particular, companies have a fair amount of latitude on the timing and impact of quarterly and annual charges and other expenses. How a firm generates revenues and turns them into earnings is an important factor, but there are other important considerations. In activity based costing method, to identify cost drivers is very necessary for unit cost and total cost. We know that activitybased costing is based on the concept. The Financial Accounting Standards Board FASB has continued to emphasize a financial measure called other comprehensive income OCI as a valuable financial analysis tool. The FASBs stated goal, in general, is to issue guidance to improve the comparability, consistency and transparency of financial reporting. To accomplish this, it has sought to increase the prominence of items reported in other comprehensive income. The Basics of OICBack in June 1. FASB issued FAS1. Other comprehensive income can be seen as a more expansive view of net income. In the past, changes to a companys profits that were deemed to be outside of its core operations or overly volatile were allowed to flow through to shareholders equity. OCI provides important details on these figures. An important distinction needs to be made between comprehensive and OCI. Comprehensive income is simply the combination of standard net income and OCI. As such, it is literally a more comprehensive and holistic view of the drivers of a companys operations and other activities that are an integral component of its economics. The FASBs technical definition of comprehensive income is the change in equity net assets of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. OCI can be found as a line item on a companys balance sheet. It is specifically located under the equity section of the balance sheet, as well as under a related statement called the consolidated statement of equity. In more recent years, in addition to the standard balance sheet reporting conventions for OCI, companies have a couple of other ways to present it in their financial statements. They can either list the individual line item components along with the income statement such as at the bottom of the income statement or present OCI on its own separate page. This is also part of a long term goal to help U. S. Generally Accepted Accounting Principles GAAP merge more closely with International Financial Reporting Standards IFRS as administered by the International Accounting Standards Board IASB. To better illustrate the specific components of OCI, here is an example Met. Life. In 2. 01. 2, one of its recent 1. K filings with the Securities And Exchange Commission SEC details standard net income of 6. That is a pretty significant driver of its overall profit levels for the year. For the full year, the items that ran through comprehensive income included unrealized gains from derivatives instruments of 1 billion, unrealized investment gains of 4. Why OCI Is Important. Understanding the drivers of a companys daily operations is going to be the most important consideration for a financial analyst, but looking at OCI can uncover other potentially major items. For instance, the items listed in the Met. Life example above are important and are generally for financial firms. Insurance companies, banks and other financial institutions have large investment portfolios that they manage. Realized gains and losses are going to run through reported net income for the most part, but looking at the unrealized side of the equation can demonstrate how it is managing its investments and if there is the potential for big losses down the road. In this respect, OCI can help an analyst get to a more accurate measure of the fair value of a companys investments. Looking at OCI can also lend insight into firms that operate overseas and either do currency hedging or have sizable overseas revenues. Met. Lifes foreign currency adjustment wasnt overly large, but it can help an analyst determine the impact of currency fluctuations on a companys operations. For a U. S. based firm, a stronger domestic dollar will lower the reported value of overseas sales and profits. Looking at results from a currency neutral standpoint can help in understanding the actual dynamics of growth and profitability. Another major category in OCI is the impact on corporate retirement plans. Playstation Emulator For Android. Years of negligible stock returns have placed the pension assets of a number of large corporations below the obligations they must cover for current and future retirees. Examples of these differences can demonstrate just how big the impact can be on a firm. In 2. 01. 1, Goodyear reported standard net income of 3. In another report that year, industrial giant General Electric logged regular earnings of 1. The extent of future retirement liabilities is certainly an important consideration in estimating a firms future profit prospects. The OCI measure was also quite helpful during the financial crisis of 2. For instance, coming out of the Great Recession, banking giant Bank of America reported a 1. The difference had to do with OCI and the unrealized losses that took place in its investment portfolio. Overall, it called into question the quality of the profit figures it held out as its real measure of capital generation for the year. The Bottom Line. Understanding and analyzing OCI greatly improves financial analysis, especially for financial companies. In an ideal world, there would only be comprehensive income as it includes standard net income and OCI, but the reality is that an astute analyst can combine both statements in his or her own financial models. Existing disclosures to either detail comprehensive income and all of its components at the bottom of the income statement, or on the following page in a separate schedule, have made analysis easier. A number of accountants have questioned why OCI was listed as part of equity on the balance sheet, but if you look carefully there are a number of places to locate it and help determine the health and total economics of the underlying company.