What is the purpose of the statement of cash flows?

The statement of cash flows serves the primary purpose of displaying cash inflows and outflows for a specific period, providing a detailed summary of how cash moves in and out of a business. This financial statement is crucial because it helps users understand how a company generates and uses cash in its operating, investing, and financing activities.

By analyzing the cash flow statement, stakeholders can assess the company's liquidity and solvency, determine its ability to meet financial obligations, and evaluate its overall financial health. Unlike the income statement, which may include non-cash revenues and expenses, the statement of cash flows focuses solely on cash transactions, highlighting the actual cash available to the business. This distinction is vital for investors and creditors when making informed decisions regarding the company's financial position and operational viability.