Which method of risk assessment involves examining past financial performance to identify potential risks?

The method of risk assessment that involves examining past financial performance to identify potential risks is best represented by net income analysis. This approach focuses specifically on a company's historical financial data, particularly income statements, to determine patterns and trends related to income generation. By analyzing past net income, an organization can gain insights into potential financial vulnerabilities or areas where performance may be impacted by various risks, such as market fluctuations, operational inefficiencies, or changes in consumer behavior.

Using net income analysis allows companies to understand how past financial results relate to future performance and risk exposures. It provides a clear picture of profitability trends, which can help highlight risks associated with revenue generation and expense management. This historical perspective can inform risk management strategies aimed at mitigating future financial uncertainties.

In contrast to other methods, such as qualitative assessments, which focus on subjective judgments and non-numerical data, or quantitative analysis, which relies on numerical data but may not focus solely on past performance, net income analysis directly correlates to evaluating historical financial risk based on actual performance outcomes.