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the income statement answers which of the following questions? a. how profitable was the business? b. how much money did the owners invest? c. how much cash did the firm generate? d. how much money does the company owe?

User Daprezjer
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2 Answers

20 votes
20 votes

Final answer:

The income statement answers the question of how profitable the business was, showing net profits or losses. It does not detail owner investments, cash flow, or company debt, which are found in the balance sheet and cash flow statement. For early-stage corporate finance, very small companies seek private investors, young companies may favor IPOs for broader capital access, and venture capitalists often have better profit insights than bondholders.

Step-by-step explanation:

The income statement is a financial report that answers the question: how profitable was the business? It summarizes the company's revenues and expenses over a particular period, exhibiting the net profit or loss incurred by the business. This report is essential for stakeholders to assess the company's performance and make informed decisions. In contrast, the amount of money the owners invest is reflected in the balance sheet under shareholders' equity, while information on how much cash the firm generates can be found in the cash flow statement. Lastly, the amount of money the company owes is also displayed on the balance sheet under liabilities.

Answering the self-check question on early-stage corporate finance:

  • Very small companies tend to raise money from private investors instead of through an IPO because the cost and regulatory requirements of an IPO are often too demanding for such companies. Private investments allow for a more straightforward infusion of capital.
  • Small, young companies may prefer an IPO to borrowing from a bank or issuing bonds to avoid the burden of regular interest payments and to gain access to a broader capital pool.
  • A venture capitalist typically has better information about whether a small firm is likely to earn profits because they perform detailed due diligence and are often involved in the firm's management, unlike a potential bondholder who relies on credit ratings and financial statements.
User Shuang
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15 votes
15 votes

Answer: How Profitable was the business?

Step-by-step explanation:

the income statement indicates how much money the business accumulated

User Berkowitz
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