Income is the value of any consumption or withdrawals during the accounting period, plus the difference between the values of ending and beginning assets. The essential problem in constructing measures of income is choosing the appropriate measure of asset value. Starting with the 1976 annual reports, the Securities and Exchange Commission is requiring disclosure of one specific measure of current asset value—replacement cost. This two-part article provides analysts with estimates of replacement cost information for the Dow Jones industrial companies for 1975, and with a means for estimating replacement costs for other companies. It also explains how replacement cost disclosures can be used in assessing the results of companies’ operations.

The first section of Part I describes the kind of information to be included in the 1976 financial statements. For 1976 reports, companies need only disclose replacement costs for inventory items and depreciable plant; monetary items such as long-term debt or receivables do not fall under current SEC requirements. The second section shows how replacement cost information can be used in constructing various measures of income—distributable income, realized income and economic income. (Distributable income can be distributed without impairing the firm’s physical capacity to remain in business at current levels. Economic income is distributable income plus all holding gains. Realized income is distributable income plus realized holding gains, or to put it another way, economic income less unrealized holding gains.) The third section of Part I provides distributable income figures for 1975 for the Dow Jones industrial companies and includes a detailed statement of distributable income for one of them—General Electric.