What is the primary purpose of a cash flow statement?

The primary purpose of a cash flow statement is to show the inflow and outflow of cash within a business over a specific period. This financial statement is vital because it provides insights into a company's liquidity, financial health, and cash management practices. By detailing how cash enters and exits the business, users can assess how well the company generates cash to meet its obligations and fund its operations.

Understanding cash flow is crucial for stakeholders, as it helps evaluate whether a company can sustain and grow its operations without relying heavily on financing or investments. This distinguishes cash flow from other financial metrics, which may focus more on profitability, asset valuation, or equity, but do not comprehensively capture the actual movement of cash.