Question

Is the Income Statement a tool to evaluate the performance of a company over a specific period of time? Explain its relevance.

Answer 1

Income Statement
The income statement illustrates the profitability of a company over a given period of time.This statement typically includes one section detailing revenues and gains and another section detailing expenses and losses. If the company’s revenues and gains are greater than its expenses and losses, then the income statement will show a net profit. However, if the company experiences greater expenses and losses, the income statement shows a net loss.
Relevance of Income Statement
Profitability	It clearly states whether a company is making profit or not. For a company to be consiered as a good inestment avenue it should make profits over the long term. This information is primarily available in an income statement.
Updated	As these statement provide the picture on the profitability of the company it is continously reviewed by the investors and the management. Hence it is the most updated document of the company. other financial statements are published annually, an income statement may be released quarterly or monthly.
Classification	It clealy represents the different revenue and expenses of the company.This gives managers a view of how each department is performing, so that if one department is underperforming, it can become the focus of improvement. It also classifies the non business related expenses and revenues seperatly which is very impotant from the stakeholders point of view.