What does the statement of cash flows report?

The statement of cash flows provides a comprehensive overview of a company’s cash inflows and outflows across three critical areas: operating activities, investing activities, and financing activities. This financial statement is essential as it helps stakeholders understand how cash is generated and used within the company during a specific period.

Operating activities reflect the cash generated from the company’s core business operations, including receipts from sales and payments for goods and services. Investing activities detail cash flows related to the acquisition and disposal of long-term assets, such as property and equipment, as well as investments in other companies. Financing activities encompass the cash interactions with the company's capital structure, including issuing or repurchasing stock, borrowing, and repaying debt.

By including these three categories, the statement of cash flows provides a complete picture of a company’s liquidity and financial health, which is critical for making informed business and investment decisions. This clarity on cash movement contrasts sharply with financial statements that only report profits or losses or emphasize market value, which do not directly convey the actual cash available to the business.