What is the main purpose of a cash flow statement?

The main purpose of a cash flow statement is to show the inflows and outflows of cash within a company. This financial statement is crucial as it provides insights into how a company manages its cash position, which is vital for covering expenses, reinvesting in the business, paying dividends, and fulfilling other financial obligations.

Cash flow statements categorize cash flows into operating, investing, and financing activities. Operating activities reflect the core business operations, investing activities show cash used for investments in long-term assets, and financing activities outline cash transactions involving equity and debt. By analyzing these categories, stakeholders can assess the company’s liquidity, financial flexibility, and overall cash health.

The other options, which focus on revenue and expenses, profitability, and non-cash items, do not capture the essence of a cash flow statement as effectively. While revenue and expenses are components of the income statement and indicate operational performance, they do not provide a complete picture of cash management. Profitability is measured by the income statement, which may include non-cash items like depreciation, but these figures do not directly address actual cash movement. Thus, the cash flow statement stands out as the primary tool specifically designed to track cash movements, making option D the right answer.