Which two financial statements are primarily used for valuation purposes?

The Income Statement and the Balance Sheet are crucial documents for valuation purposes because they provide essential insights into a company's financial health and performance.

The Income Statement is key for understanding a company’s profitability over a specific period. It details revenues, expenses, and net income, which are important metrics used in various valuation models, including the discounted cash flow (DCF) analysis. Investors and analysts look at this statement to gauge how well the company generates profit relative to its expenses, which directly influences its valuation.

The Balance Sheet, on the other hand, offers a snapshot of the company's financial position at a specific point in time. It includes assets, liabilities, and equity, which are foundational for determining the net worth of the company. This statement is instrumental in assessing the capital structure and financial stability of the business, key components when evaluating the firm’s value and risk profile in valuation models like the price-to-earnings (P/E) ratio or net asset value.

Together, these statements provide a comprehensive view of a company's financial situation and help analysts and investors derive a more accurate valuation, making them indispensable tools in financial analysis.