Question

What does the Profit and Loss Account help stakeholders assess?

• A. The company's liquidity
• B. The company's solvency
• C. The company's profitability
• D. The company's market share

Hint:

The Profit and Loss Account reveals the company's profitability over a period.

Answer 1

The Correct Option is C

The Profit and Loss Account (also called the Income Statement) summarizes the revenues, costs, and expenses incurred during a specific period.
This financial statement helps stakeholders assess the company's profitability by showing:

Total income earned
Expenses incurred
Net profit or loss during the period
Understanding profitability allows investors, creditors, and management to evaluate how well the company is performing financially.
Explanation of Other Options:

(A) Liquidity: Assessed by the Balance Sheet or Cash Flow Statement.
(B) Solvency: Related to long-term ability to meet debts, assessed via Balance Sheet ratios.
(D) Market share: Determined from market data, not financial statements.
Thus, option (C) is correct.