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What can users (investors, analysts, etc...) of the Income Statement infer from the statement compared with...

What can users (investors, analysts, etc...) of the Income Statement infer from the statement compared with the information you can infer from the Balance Sheet and the Cash Flow Statement?

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Answer #1

The users of the Income Statement can find whether the company is profitable in a given year by using various ratios such as the Gross Margin and Profit Margin.

The lenders are interested in ratios such as the interest coverage ratio = EBIT/Interest Expense, to see whether the company has the ability to pay interest. This information is not available in the Balance Sheet or the Cashflow Statement.

Price to Earnings (PE) is one of the key metrics investors are interested in. Income Statement provides the data needed to calculate this ratio.

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