Which of the following statements is CORRECT?
a. The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows. b. The income statement shows the difference between a firm's income and its costs—i.e., its profits—during a specified period of time. However, all reported income comes in the form of cash, and reported costs likewise are consistent with cash outlays. Therefore, there will not be a substantial difference between a firm's reported profits and its actual cash flow for the same period.
c. EPS stands for "earnings per share," while DPS stands for "dividends per share." We would normally expect to see DPS exceed EPS.
d. Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm either sold any of those assets or purchased any new fixed assets. The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
e. Assets other than cash are expected to produce cash over time, and the amount of cash they eventually produce must be the same as the amounts at which the assets are carried on the books.

The main reason for the annual report is that it is utilized by investors when they expect future income and dividend from the company as well as the risks associated with those cash flows.

The statement of income shows the difference between the income and costs of a company–that is, its profits–over a given duration. Nevertheless, any income reported comes in cash and the expenditure reported always reflects cash expenditures. There will therefore be no substantial difference for the same period between a company's profits reported and its real cash flow.

Suppose all companies follow generally accepted standards of transparency. Two years ago, both companies started operations with similar fixed assets worth $1 million, and neither company sold either or purchased any of these properties. All firms would have to report to their balance sheets the same amount of net fixed assets as the statements are sent to creditors.

Assets other than currency are expected to produce cash over time and the amount of cash they generate will be the same as the amounts on the ledger.