What does a statement of cash flows summarize?

A statement of cash flows provides a detailed summary of cash inflows and outflows from various activities within a specific period. This financial statement breaks down cash transactions into three main categories: operating activities, investing activities, and financing activities.

Operating activities include cash generated from the primary revenue-generating activities of the business, like sales of products or services, as well as cash expenses. Investing activities generally encompass cash flows from the purchase and sale of physical and financial investments, such as property or stocks. Financing activities pertain to cash flows related to obtaining or repaying capital, like loans or equity financing.

The emphasis of a cash flow statement is on liquidity and cash management rather than profitability or asset management, making it vital for understanding how well a company manages its cash to fund its operations and meet its financial obligations. This is distinct from other options that focus on areas like stock market investments, long-term financial health, or profit margins, which are not encapsulated within the scope of a cash flow statement.