What information does a cash flow statement provide?

A cash flow statement is a vital financial document that provides insight into the liquidity and financial health of an organization by detailing cash inflows and outflows over a specific period. This statement is divided into three main sections: operating activities, investing activities, and financing activities.

In the operating activities section, the cash that is generated or used by core business operations is reported, reflecting how well the company can generate cash from its regular business operations. The investing activities section covers cash movements related to the purchase and sale of physical and financial investments, while the financing activities section captures cash flows related to borrowing and repaying debt, as well as transactions involving equity.

By summarizing these cash movements, the cash flow statement enables stakeholders to understand how effectively a company manages its cash to fund its operations, invest in growth, and meet its financial obligations. This information is crucial for assessing the company's solvency and liquidity, which are key factors in its overall financial stability.