What does a cash flow statement illustrate?

A cash flow statement illustrates the actual cash generated and used during a specific period. This financial report provides a detailed analysis of how cash flows in and out of a business, categorizing these cash movements into operating, investing, and financing activities.

By focusing on cash inflows and outflows, the cash flow statement helps stakeholders understand a company’s liquidity, solvency, and overall financial flexibility. This insight is crucial because it reveals the company’s ability to maintain operations, meet obligations, and make new investments without relying solely on profits reported on the income statement.

While other financial statements, such as the income statement or balance sheet, offer insights into profitability or the company's overall financial health at a specific point, the cash flow statement is distinct in its focus on actual cash movement rather than accounting profits or equity values.