For assessing profitability, which financial statement is used by investors or lenders?

The Income Statement is crucial for assessing profitability because it provides a detailed summary of a company's revenues, expenses, and profits over a specific period. Investors and lenders closely analyze this statement to determine how much profit a business is generating from its operations. The Income Statement highlights key figures, such as gross profit, operating income, and net income, which collectively give a comprehensive view of a company's financial performance.

This statement enables stakeholders to evaluate not only the overall profitability but also the effectiveness of the company's cost management and revenue generation strategies. By reviewing the Income Statement, investors and lenders can better understand the potential returns on investment or loans, making it an essential tool for financial decision-making.

In contrast, the Statement of Cash Flows primarily tracks cash inflows and outflows, which, while important for understanding liquidity, does not directly measure profitability. The Balance Sheet provides a snapshot of the company's assets, liabilities, and equity at a given moment but lacks the dynamic insights into performance over time that the Income Statement offers. The Expense Report details expenses incurred but does not summarize revenues or overall profitability, thus falling short in providing the broader perspective needed for assessing financial health.