What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to summarize cash inflows and outflows over a period. This financial document provides crucial insights into the cash transactions of a business, detailing how cash is generated from operations, as well as how it is spent on various activities, including operating, investing, and financing activities.

Understanding cash flow is vital for businesses because it allows them to assess liquidity, manage working capital, and ensure they have sufficient cash to meet obligations as they arise. Unlike other financial statements, the cash flow statement specifically focuses on cash rather than accounting profits, revealing the actual movement of cash into and out of the company. This makes it an essential tool for stakeholders who wish to understand a company's financial health and operational efficiency.

Other options delve into different aspects of financial reporting or management but do not capture the primary objective of the cash flow statement, which is exclusively about cash transactions.