What does the Cash Flow Statement show?

The Cash Flow Statement is designed to provide insights into a company’s liquidity and the cash generated and used during a specific period. It shows how cash inflows and outflows are categorized into operating, investing, and financing activities. This statement helps stakeholders understand how the company manages its cash resources and where the cash is coming from or going to during a given time frame.

By showing changes in balance sheet accounts and income, the Cash Flow Statement highlights the relationships between income reported on the Income Statement and cash flow movements. For example, it reconciles net income to cash generated from operations, illustrating how non-cash income and expenses (like depreciation) affect actual cash flow.

Understanding this link is critical for assessing a company's financial health, as profitability on the Income Statement does not necessarily equate to cash generation, making the Cash Flow Statement essential for evaluating a company's operational efficiency and overall performance.

In contrast, capturing profitability over several periods focuses more on the Income Statement rather than the cash flows. Similarly, depicting the static nature of a company's assets and outlining revenue trends over time do not provide the operational cash insights or liquidity evaluation that the Cash Flow Statement specifically offers.