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Other Comprehensive Income: It’s Relevance for Analyzing Financial Institutions
How useful is OCI information for financial analysis in general and for assessing the performance of banks in particular? In this article, citing evidence of recent CFA Institute publication and other recent academic evidence, I argue that assessing OCI line items is an integral part of understanding the performance of bank financial institutions. The arguments are predicated on evidence that demonstrates the inherent economic relevance of available for sale and cash flow hedge re-measurements that are reported on the OCI section of the statement of comprehensive income.
1. Introduction
The OCI section (other comprehensive income) and the income statement are part of the statement of comprehensive income, which is the ‘flow statement’ that portrays the wealth creation activities of a reporting entity during any reporting period. The income statement reflects revenue and expenses associated with core operating activities. The income statement also includes some gains and losses from non-core activities (e.g. extraordinary items). On the other hand, the OCI section is comprised of holding gains and losses including re-measurements related to: available for sale (AFS) debt and equity se...