GACE Business Education Practice Exam 2025 - Free Business Education Practice Questions and Study Guide

The income statement is the financial statement that reveals a company’s profitability. It summarizes the revenues earned and expenses incurred over a specific period, typically a quarter or a year. By subtracting total expenses from total revenues, the income statement provides the net income or net loss, which is a direct indicator of profitability. This information is crucial for stakeholders, including investors, management, and analysts, as it shows how efficiently the company is generating profit from its operations.

The balance sheet does not directly reflect profitability; instead, it provides a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and equity. The cash flow statement focuses on the inflows and outflows of cash, providing insights into liquidity and cash management rather than profitability directly. The equity statement typically informs about changes in equity accounts over a period but does not directly address profitability either.