What does the Statement of Cash Flows report?

The Statement of Cash Flows provides a comprehensive overview of both cash inflows and cash outflows during a specific accounting period. This financial statement is crucial because it helps stakeholders understand how cash is generated and utilized within a business. By detailing the sources and uses of cash, it highlights the company’s liquidity, solvency, and financial flexibility.

The statement is divided into three main sections: operating activities, investing activities, and financing activities. The operating activities section shows cash flows from core business operations, while the investing section reflects cash spent on or received from the purchase and sale of long-term assets. The financing section outlines cash flows resulting from borrowing and repaying loans, as well as transactions with shareholders.

This detailed reporting is vital for analyzing a company's cash position and future cash flow prospects, distinguishing it from other financial statements such as the income statement, which may include non-cash elements like revenues and expenses. This emphasis on actual cash transactions makes it an invaluable tool for assessing the sustainability of a company's performance.