When analysing financial statements, which statement helps you assess the long-term financial health and profitability of a company?

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The prompt asks us to evaluate which financial statement helps assess long-term financial health and profitability of a company. 
Option 1: Income statement. This document shows revenues, expenses, and net income over a period, highlighting profitability and operating performance which are key to assessing long-term viability. It tells you whether the company is generating sufficient profit over time, which is central to long-term health. 
Option 2: Cash flow statement. This statement reveals cash inflows and outflows and is crucial for understanding liquidity and cash management, not directly profitability, though it relates to sustainability. It doesn’t quantify profit but rather cash movements. 
Option 3: Balance sheet. This provides a snapshot of assets, liabilities, and shareholders’ equity at a point in time, indicating financial position and leverage, which is important for stability but not a direct measure of profitability. 
Option 4: Retained earnings statement. This line item shows changes in retained earnings, stemming from net income and distributions, but it is not a standalone statement commonly used to gauge overall profitability or long-term health as comprehensively as the income statement. 
In summary, while cash flow and balance sheet data are vital for different aspects of financial health, the income statement best encapsulates profitability over a period, making it the primary tool for assessing long-term profitability among the options given.

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When analysing financial statements, which statement helps you assess the long-term financial health and profitability of a company?

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