What is the main purpose of a cash flow statement?

The main purpose of a cash flow statement is to provide information about cash inflows and outflows over a specific period. This financial statement is crucial as it gives stakeholders insight into how a company manages its cash — the lifeblood of any business. By detailing where cash is coming from and where it is being spent, the statement highlights a company's liquidity, helps assess its financial flexibility, and can signal its ability to generate future cash flows.

This focus on cash flows distinguishes the cash flow statement from other financial statements. For example, while total revenue summarizes earnings and profitability, it does not necessarily reflect the actual cash available to the company. Similarly, while obligations may be detailed in the balance sheet, they do not account for the cash necessary to meet those obligations. The cash flow statement provides a clearer picture of a company's cash health by presenting actual cash transactions that occurred during the period, separating them into operational, investing, and financing activities. This structure helps stakeholders make informed decisions based on the company's ongoing cash requirements and operational performance.