What is a cash flow statement?

A cash flow statement is fundamentally a financial document that provides a clear record of how cash enters and exits a business over a specified period. This statement is essential for understanding the liquidity position of a company, which is critical for ongoing operations and long-term success. It breaks down cash flows into three categories: operating activities, investing activities, and financing activities.

Operating activities include cash flows from the core business operations, such as receipts from customers and payments to suppliers. Investing activities encompass cash transactions for the purchase and sale of physical and financial investments, while financing activities detail cash movements related to borrowing and repaying debts, as well as changes in equity.

By analyzing a cash flow statement, stakeholders gain insights into how well a company generates cash to fund its obligations and manage its finances. This contrasts with other financial documents, such as profit and loss reports, which focus on revenues and expenses without detailing cash movements. Therefore, the definition aligns perfectly with the role and significance of a cash flow statement in financial management.