What is the primary purpose of a cash flow statement?

The primary purpose of a cash flow statement is to show the real cash available to keep the business running. This financial statement provides insight into how cash flows in and out of a company during a specific period, revealing how much cash is generated from operating activities, investing activities, and financing activities. Understanding these cash flows is crucial for assessing the company's liquidity, financial health, and ability to meet short-term obligations.

By focusing on cash rather than profits, the cash flow statement highlights the actual cash position of the business, which is essential for managing day-to-day operations and ensuring that there is enough cash on hand to pay bills, employees, and invest in opportunities when they arise. This information helps stakeholders, including management, investors, and creditors, make informed decisions about the company's financial strategy and operations.