What financial statement is used to analyze profit margins over time?

The profit and loss account, also known as the income statement, is the appropriate financial statement for analyzing profit margins over time. This document details a company's revenues, expenses, and profits during a specific period, allowing for the evaluation of how effectively a company generates profit from its operations.

By examining the profit margins, which are calculated by dividing net income by total revenue, stakeholders can assess trends in profitability over various time frames. This is essential for understanding how well the company controls costs and generates sales, thereby providing insights into operational efficiency and potential areas for improvement.

In contrast, the balance sheet provides a snapshot of a company's assets, liabilities, and equity at a single point in time, which does not give insights into profitability over periods. The cash flow statement captures the flow of cash in and out of the business but does not directly address the relationship between revenues and expenses needed for margin analysis. The trial balance serves as an internal report to ensure debits equal credits and doesn't summarize income or expenses, making it unsuitable for assessing profit margins.