What is a cash flow statement?

A cash flow statement is fundamentally a financial document that summarizes cash inflows and outflows for a specific period. This statement is crucial as it provides insight into the liquidity of a business, showing how well the company generates cash to pay its debts and fund its operating expenses.

By detailing various sources of cash inflows—such as revenues from sales and income from investments—and cash outflows—like operating expenses, capital expenditures, and loan repayments—the cash flow statement allows stakeholders to assess the company's operational efficiency and overall financial health. It differentiates between cash generated from operations, investments, and financing activities, enabling a clear picture of the cash position.

Understanding a cash flow statement is essential for investors and management, as it highlights the actual cash available regardless of accounting profits, thereby offering a more accurate financial perspective on the company’s ability to manage its cash effectively.