What is the primary purpose of a Cash Flow Statement?

The primary purpose of a Cash Flow Statement is to show cash inflows and outflows over a reporting period. This statement provides crucial information about how a company generates cash and how it spends that cash, facilitating an understanding of its liquidity and financial health. By summarizing cash transactions, it helps stakeholders, including investors and creditors, assess the company's ability to generate cash to fund its operations, pay debts, and invest in future growth.

Additionally, while other financial statements, like the income statement, focus on revenues and expenses (which may not convert to cash during the reporting period), the Cash Flow Statement specifically details actual cash transactions. This is critical for stakeholders since a company can be profitable yet still face cash flow issues if it does not manage its cash resources effectively. Thus, emphasizing cash inflows and outflows allows for a clearer understanding of the company's operational efficiency and financial flexibility.