Final answer:
The statement is true. Investors and creditors often view the income statement as a vital tool for predicting a company's future profitability and cash-generating potential, which also influences stock prices based on changing expectations.
Step-by-step explanation:
True or false: Many investors and creditors perceive the income statement as the statement most useful for predicting future profitability (future cash-generating ability). The statement is true. The income statement, which shows a company's revenues, costs, and profits over a period, is commonly used by investors and creditors to assess the financial health of a business and predict its future profitability. When it comes to stock prices, expectations about a company's future performance are critical. These expectations can lead to shifts in stock prices as perceptions change.
Over time, as firms become established and their strategies lead to predictable profits, detailed personal knowledge of management becomes less important, and publicly available financial information gains significance, guiding the decisions of outside investors like bondholders and shareholders. These investors rely on income statements to help predict future profitability and accordingly decide to provide financial capital to the firm.