Which of the following are considered the most important metrics for a business as presented in the financial statements?

• A. Inventory turnover and gross sales
• B. Depreciation expense and prepaid expenses
• C. Accounts payable and accrued liabilities
• D. Net income and cash flow

Answer: (D)

Verified step by step guidance

1. Understand the purpose of financial statements: Financial statements are designed to provide insights into a company's financial health, performance, and cash management. Key metrics like net income and cash flow are critical for evaluating profitability and liquidity.
2. Define net income: Net income represents the company's total earnings or profit after deducting all expenses, including operating costs, taxes, and interest. It is a key indicator of financial performance and is found on the income statement.
3. Define cash flow: Cash flow refers to the movement of cash in and out of the business, showing how well the company manages its cash to fund operations, pay debts, and invest in growth. It is detailed in the cash flow statement.
4. Explain why net income and cash flow are important: Net income indicates profitability, while cash flow demonstrates liquidity and operational efficiency. Together, they provide a comprehensive view of a company's financial health and sustainability.
5. Compare with other metrics: While metrics like inventory turnover, depreciation expense, and accounts payable are important for specific analyses, they do not provide the overarching view of profitability and liquidity that net income and cash flow offer.