In which financial analysis would you assess the relationship between sales and net income?

The analysis that focuses on the relationship between sales and net income is profitability analysis. This type of analysis seeks to determine how well a company can generate profit relative to its sales revenues. By assessing the relationship between these two key financial metrics, one can evaluate the effectiveness of a business in converting sales into actual income after expenses have been deducted.

Profitability analysis involves examining various ratios such as net profit margin, which directly reflects what percentage of sales has turned into net income. High profitability indicates that a business is effectively managing its costs in relation to its revenue generation. This is crucial for understanding overall business health and performance, as it gives insights into whether a company is operating efficiently in terms of generating profit from its sales activities.

Other types of analyses, such as liquidity, solvency, and efficiency, focus on different aspects of a business's financial health. Liquidity analysis examines the company’s ability to meet short-term obligations, solvency analysis assesses long-term financial stability, and efficiency analysis looks at how well a company utilizes its assets and liabilities to generate sales and maximize profit. While all these analyses contribute to understanding a business's performance, profitability analysis is specifically concerned with the sales to net income relationship.