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The methodology of the statement of comprehensive income and its impact on profitability: the case of Latvia

Author

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  • Inga Būmane

    (LU - University of Latvia)

Abstract

The financial statements of a company are used by external users as the main source of information in order to take financially informed decisions. The author of the article has summarized the study on one of the financial statements-a statement of comprehensive income (CI statement) that enables creditors and investors to assess the process of the formation of company's profit and profitability. Purpose: on the basis of the study of the specificity of the preparation of the statement of comprehensive income to analyze and evaluate the influence of CI statement items on the profitability of Latvian companies. In order to achieve the purpose, the author has structured the research in two parts. In the first part of the article the author describes the theoretical framework of the core, type and content of CI statement and describes the components of other comprehensive income. In the second part of the article the author has analyzed the methodology for the preparation of CI statement at Latvian companies and impact of other comprehensive income on profitability. The subject of research was a sample of 26 financial statements of Latvian companies. The author applied quantitative and qualitative research methods generally accepted in economics: classification, comparative analysis and synthesis, statistical methods. The essence of research findings is that the core of items of CI statement and the division into the reclassified and not reclassified items of other comprehensive income (OCI) are important for the company`s financial result-evaluation of profit. Research showed that most of Latvian companies under research were influenced by reclassified items; besides, positively influenced-profitability ratios of ROE and ROA. The author believes that, when evaluating the profitability of assets and the equity of the company, the financial analysts shall take into account the reclassified items of OCI, and the calculations shall be performed using the modifications of ROE and ROA formulas.

Suggested Citation

  • Inga Būmane, 2018. "The methodology of the statement of comprehensive income and its impact on profitability: the case of Latvia," Post-Print hal-02121024, HAL.
    • Handle: RePEc:hal:journl:hal-02121024
    DOI: 10.9770/jesi.2018.6.1(6)
    Note: View the original document on HAL open archive server: https://hal.science/hal-02121024
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    References listed on IDEAS

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    1. Dominic Detzen, 2016. "From compromise to concept? – a review of ‘other comprehensive income’," Accounting and Business Research, Taylor & Francis Journals, vol. 46(7), pages 760-783, November.
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    Keywords

    assets; comprehensive income; equity; financial statements; profitability;
    All these keywords.

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