Final answer:
The income statement is indeed used by investors and creditors to predict the future cash flows of a company by providing detailed information about its revenues, costs, and profitability, which are indicative of the company's ability to generate cash.
Step-by-step explanation:
The statement that the income statement helps investors and creditors predict amounts, timing, and uncertainty of future cash flows is true. The income statement provides vital information on a company's revenues, costs, and profits, which assists investors and creditors in assessing the firm's financial health and its ability to generate cash in the future.
Firms have varying needs for financial capital and choose between issuing stocks, bonds, or seeking out venture capitalists. Issuing stock does not obligate a company to make regular cash payments to its shareholders, thereby preserving its cash flow. On the other hand, venture capitalists, who are another type of investors, may provide capital while having better information and control over the company, which can be important in the context of imperfect information.
Therefore, understanding a company's income statement is critical for investors and creditors who are interested in the future cash flows of a company because it reflects past performance and potential for future profitability.