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.
Highlights
The financial statements of companies are used by external users as the main information source in order to analyze, assess and forecast the companies’ financial situation, results of performance, cash flow and, on the basisISSN 2345-0282 http://jssidoi.org/jesi/ 2018 Volume 6 Number 1 (September) http://doi.org/10.9770/jesi.2018.6.1(6)of above mentioned, to take the financially informed decisions
The second most often reclassified other comprehensive income (OCI) item (38%) is gains and losses arising from translating the financial statements of a foreign operation; this can be observed in the statements of five banks, four production and trade companies and one service company
Since 2009 there have been changed the requirements regarding the preparation of Profit or Loss Statement, and IAS/IFRS provides for a new type - the comprehensive income statement
Summary
The financial statements of companies are used by external users as the main information source in order to analyze, assess and forecast the companies’ financial situation, results of performance, cash flow and, on the basis. The CI statement may be prepared by applying different methodologies (type, classification of expenses, items of other comprehensive income), it is important to study the methodology of the preparation of this statement in Latvia and the influence of its items on the indicators of companies’ profit. The purpose of the research: on the basis of the study of the specificity of the preparation of comprehensive income statement to analyze and evaluate the influence of CI statement items on the profitability of Latvian companies. 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. At the end of the article there have been presented the conclusions drawn as a result of research performed and the suggestions for the improvement of methodology used to calculate the profitability of companies
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