Cash Flow Statement

The primary purpose of the cash flow statement is to provide information about a company's cash receipts and cash payments during a period. It reports the cash receipts and cash outflows classified according to operating, investment, and financing activities.

The cash flow statement is useful because it provides answers to the following simple yet important questions:

• Where did the cash come from during the period?
• What was the cash used for during the period?
• What was the change in the cash balance during the period?

The statement's value is that it helps users evaluate liquidity, solvency, and financial flexibility.

• Liquidity refers to the "nearness to cash" of assets and liabilities, or having enough cash available to pay debts when they are due.
• Solvency refers to the company's ability to pay its debts as they mature. Cash flows reflect the company's liquidity and long-term solvency.
• Financial flexibility refers to a company's ability to respond and adapt to financial adversity and unexpected needs and opportunities. For example, cash flow information can be used to evaluate the effects of major investment and financing decisions.