Which of the Basic Financial Statements Is Best Used to Answer

question 28

Multiple Choice

Which of the basic financial statements is best used to answer the question, "How profitable is the business?"

• A) Balance sheet
• B) Statement of shareholder's equity
• C) Income statement
• D) Accounts receivable aging schedule

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Definitions:

Scenario Analysis

A process of analyzing possible future events by considering alternative possible outcomes (scenarios), often for the purpose of planning through uncertainty.

Sensitivity Analysis

Analyzes how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Simulation Analysis

Involves the use of mathematical models to predict the outcome of various financial strategies under different conditions.

Cash Break-Even

Cash break-even is the point at which a business's cash receipts equal its cash expenses, indicating the minimum amount of sales needed to cover all cash outflows without considering any profit.