What does a Cash Flow Statement show?

A Cash Flow Statement primarily shows changes in cash position over time, reflecting how cash enters and exits a company throughout a specific period. It categorizes cash flows into three main activities: operating, investing, and financing. This statement provides crucial insights into a company's liquidity and financial flexibility, helping stakeholders understand how well the company generates cash to fund its operations, pay debts, and make investments.

Understanding cash flow is vital because, unlike profitability metrics derived from the income statement, the Cash Flow Statement reveals actual cash movements. This distinction is critical for managing day-to-day operations and for evaluating the company's ability to sustain or grow its business in the future. While profitability, asset distributions, and revenue comparisons are important for overall financial assessment, they do not capture the dynamics of cash flow that influence a company's immediate financial health.