What does a cash flow statement indicate?

What does a cash flow statement indicate?

• A. The overall profitability of a business
• B. The inflow and outflow of cash in a business
• C. The net worth of a business
• D. Future revenue projections

Answer: (B)

A cash flow statement is a financial document that provides a detailed overview of all cash inflows and outflows over a specific period. This statement is crucial because it helps businesses and stakeholders understand how cash is being generated and used within the company. By showcasing the actual cash transactions, it allows management to assess how well the company can cover its immediate expenses, invest in growth opportunities, and handle emergencies. In contrast to other financial statements, such as the income statement that shows profitability or the balance sheet that reflects net worth, the cash flow statement emphasizes liquidity and operational efficiency. It categorizes cash flows into operating, investing, and financing activities, giving a comprehensive view of cash management. This is essential for maintaining solvency and ensuring that a business can continue its operations without facing cash shortages.

A cash flow statement is a financial document that provides a detailed overview of all cash inflows and outflows over a specific period. This statement is crucial because it helps businesses and stakeholders understand how cash is being generated and used within the company. By showcasing the actual cash transactions, it allows management to assess how well the company can cover its immediate expenses, invest in growth opportunities, and handle emergencies.

In contrast to other financial statements, such as the income statement that shows profitability or the balance sheet that reflects net worth, the cash flow statement emphasizes liquidity and operational efficiency. It categorizes cash flows into operating, investing, and financing activities, giving a comprehensive view of cash management. This is essential for maintaining solvency and ensuring that a business can continue its operations without facing cash shortages.