What is comprehensive profit? -InvestBro

Financial statements are one of the main documents that investors must analyze before they officially buy shares of the issuer. This report contains important financial information such as liabilities owned by the company to the small profit or loss the company receives in one accounting period.

financial statements It consists of various elements, but investors tend to jump directly to the income statement.income statement). Since in this report the profit or loss that the company has received in a particular accounting period is recorded. including a record of comprehensive income

Definition of Comprehensive Income

According to Financial Accounting Standards (PSAK), comprehensive income is an increase in a company’s wealth that is not derived from its operating activities.

In English, the word Comprehensive income.

Comprehensive profit can be obtained by adding net profit to other profits generated from non-operating activities of the company. These non-operating activities may be in the form of foreign exchange rate adjustments. income from tax rebate or the profits of subsidiaries that are deposited with the parent company and other benefits that may affect the value of the company in the eyes of stakeholders

Will Kenton on the Web Investopedia State that this comprehensive income includes gains or losses on investments that have not yet been taken by the company (unrealized losses and gainsFor example, one of Company A’s businesses is investing by buying Stock B if the price of Stock B goes up, but Company A does not sell financial instruments. capital increase The increase in share B’s price should be reported as comprehensive income. The goal is so that investors or other stakeholders do not mistake these benefits as part of the company’s operating profit.

It is important for investors to understand the existence of this comprehensive income. This is because it is possible for a company’s net profit to be negative (loss), but its comprehensive income is positive due to the high profits from this non-operating activity.

Components of a Comprehensive Income Report

Comprehensive income generally consists of the following components:

1. The company’s profit or loss on unsold securities. (unrealized losses and gains) as in the example of Companies A and B above.
2. foreign exchange rate adjustmentCompanies doing import and export transactions are required to make adjustments to these foreign exchange rates. taking into account that the rupiah exchange rate compared to other currencies The whole world continues to change every day.
3. Adjustment of the value of the pension fundOne of the obligations of the Company to its employees is to provide a pension fund sufficient for compensation if the employee leaves the educational institution or retires. This pension fund amount may vary depending on the number of employees covered and government regulations.
4. Change in the value of a futures contract that is covered by a hedging transaction. (Hedging). Companies that have to import goods often use forward transactions. (Any type Derivatives) in order to get the right product price. to maintain the price in this contract They can also use the services of a hedge fund company.

Comprehensive profit report function

Writing comprehensive income in a company’s financial statements has the following benefits:

1. Give a complete picture of the financial situation.

The larger the company The more complex the bookkeeping mechanisms that companies have to operate, the more complex they become. Especially if the company invests in other companies a lot or conducts international transactions.

With this part it is expected that investors and other stakeholders can clearly know the financial status of the company. Because, of course, good stakeholders want to lend, invest, and relieve companies with really good and stable financial conditions.

2. Investment

Investors can use this earnings information to assess the fundamental condition of the issuer. Because there is a possibility that the company will suffer a loss in the form of net profit. But the gain was recorded in comprehensive income due to other income from the business sectors that did not operate above. If it happens continuously, it can be concluded that the company’s financial position from the point of view of operations is not very good. However, the non-operating sector is quite good.

3. Equity Loans

Bank loans are one of the company’s funding sources in addition to the issuance of stocks and other securities. Banks, as financial institutions, certainly do not want to lend to companies with high financial risks.

The existence of this section gives the bank a complete financial picture of the company. So that the bank can determine the level of risk and how little capital the company can borrow. This is important. Because bank payment failures can have a huge impact on the country’s economy.

4. Company Management

Comprehensive profit and loss records are also useful for decision making within the company. For example, with this financial information, The company can know in general terms the impact of changes in the rupiah exchange rate on the company’s profits as a whole.

This allows the company to make more appropriate business strategies. For example, the relationship between the rupiah to dollar exchange rate and the profit of the company is negative (if USD/IDR increases, the profit of the company decreases). in the country and stop importing raw materials

Covered Profit Limits

in the author’s opinion The main disadvantage of comprehensive income is its volatile components. For example, exchange rates can change within a day. in fact Financial reports are often reported every day. three months and once a year

This prevents the value of these financial records from being fully used as a benchmark for business profits. To fully understand how these elements are calculated for inclusion in the financial statements. Stakeholders need to understand various accounting techniques.

This income statement post can be a potential source of misunderstanding. Investors can interpret that the gains made by this post are fundamental and difficult to change. Therefore, it is important for investors to know the difference between comprehensive income and general net income.

Difference Between Comprehensive Income and Net Income

Net profit is the result of deducting revenues and costs incurred from the company’s operating activities. Comprehensive profit is the result of adding net profit to the company’s income from other parts. listed in the Profit Components subchapter above.

You can differentiate between these two types of profits. It is hoped that investors and other stakeholders will know that the company’s profit is more due to the company’s business or other factors.