Which financial statement is primarily used to evaluate a company’s profitability?

The income statement is the financial statement primarily used to evaluate a company’s profitability. It provides a detailed account of revenues and expenses over a specific period, ultimately leading to the calculation of net income or loss. This statement reveals how much money a company has earned versus how much it has spent, enabling stakeholders to assess its operational efficiency and profitability.

By analyzing the breakdown of revenues, costs, and expenses, investors, analysts, and management can identify trends in income generation and cost management. This information is crucial for making informed decisions regarding investments, budgeting, and strategic planning. The income statement essentially illustrates how a company turns its sales into profit, making it the most relevant document for evaluating financial performance in terms of profitability.

In contrast, while the balance sheet provides a snapshot of a company's financial position at a specific point in time, it does not convey the dynamics of profitability. The cash flow statement focuses on the inflow and outflow of cash, highlighting liquidity rather than profitability. The statement of changes in equity documents the changes in ownership equity over a period but does not directly reflect operational performance in terms of earning capabilities. Thus, the income statement stands out as the primary tool for assessing profitability.