What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to provide detailed information about a company's cash inflows and outflows over a specific period. This financial statement outlines how cash is generated and used within the business, offering insights into operational, investing, and financing activities.

Understanding cash flow is essential for assessing a company's liquidity, financial flexibility, and overall health. It helps stakeholders determine the ability of the business to generate cash to meet its obligations, reinvest in its operations, and distribute dividends. In contrast to other statements like the income statement, which may include non-cash items, the cash flow statement focuses solely on actual cash transactions, making it a crucial tool for financial analysis.