What is the primary purpose of an income statement?

The primary purpose of an income statement is to summarize revenues and expenses to show profitability. This financial statement provides a clear and concise overview of a company's financial performance over a specific period, typically a quarter or a year. By detailing the income generated from sales and the costs incurred to generate that income, the income statement presents an organization's ability to generate profit, which is essential for stakeholders looking to assess operational efficiency and profitability.

This statement plays a critical role in financial analysis as it not only helps internal management in making informed business decisions but also aids investors, creditors, and analysts in evaluating the company's past performance and future potential for growth. Understanding profitability is vital for stakeholders seeking to invest or lend to the company, as it reflects the firm's capability to sustain operations and provide returns.