Disclosing Income
For the year ended December 31, 2008, Yahoo! Inc. reported its net income as approximately $424 million. The company also disclosed comprehensive income of only $213 million. Does it disturb you that this one company reports two separate income figures and they can be so significantly different? Or do you find disclosing income in two distinct ways to be helpful when you analyze a company like this?
Actually I think the idea of disclosing income in two different ways makes sense. Having said that, if I were a shareholder of Yahoo! I would want to ask, Why these numbers are so far apart? What exactly is included in (or excluded from) each of these income figures? Is the company’s core business sound? This question is probably best answered by net income. The reduction in arriving at comprehensive income is likely to have come from losses in the value of available-for-sale investments and from holding foreign currency balances. Is management distracted by trying to manage a large investment portfolio? How much of the difference comes from currency rate changes, and is there a way to hedge this volatility to reduce the impact? If there is a way to hedge the risk, why did company officials not do so?
In sum, the reason I like including both income numbers is that anything that increases disclosure is a positive, especially when investing money. The more transparency the better is my feeling. Then, investors can make up their own minds as to management’s competence and the success of the overall business of the company.
