What is the purpose of the cash flow statement?

The purpose of the cash flow statement is to provide detailed information regarding a company's liquidity and cash movements over a specific period of time. This financial statement tracks the flow of cash in and out of the business, categorizing it into operating, investing, and financing activities. By focusing on cash transactions, the cash flow statement helps stakeholders understand how effectively a company generates cash to fund its operations, pay debts, and invest in future growth.

Liquidity is crucial for a company's survival and operational capability, making it essential to see how cash is being managed through various activities. The cash flow statement complements the balance sheet and income statement by highlighting short-term financial health, which is not always apparent through revenues and expenses alone. This information is vital for investors, creditors, and management when making economic decisions related to the company's financial strategies and risk exposure.