First, creditors and investors can utilize the information given on income statements to answer questions about the organization's past performance. Second, these parties can also utilize the information to assess the riskiness of gains, expenses, and revenue/income. These parties also develop a relationship between these variables that can be used in decision making.
Work Step by Step
The income statements are critical because they provide creditors with information and data that can be used in predicting future outcomes, expenses, revenues, timings as well as the level of uncertainty on future cash flows. By utilizing the information, investors and creditors are able to make estimations of future cash flows by different methods, therefore facilitating decision making. It is also important to recognize that income statements can also be used by other parties aside from investors and creditors.