What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to show financial transactions for a specific period, detailing how cash enters and exits a business. This statement provides insights into a company’s liquidity and overall financial health by illustrating how cash is generated from operating activities, how it is spent on investing activities, and how cash is used in financing activities.

By tracking the flow of cash, business owners and stakeholders can assess the organization's capacity to manage its cash needs, make informed decisions regarding budgeting, spending, and investment. Furthermore, unlike profit-focused financial statements that may include non-cash revenues or expenses, the cash flow statement focuses solely on actual cash transactions within the defined period, providing a clear view of cash availability.

The other options reflect different aspects of financial reporting that do not encapsulate the primary function of the cash flow statement. For instance, reporting annual profits pertains more to an income statement, measuring total assets relates to the balance sheet, and evaluating investment opportunities typically involves analysis beyond just cash flow, requiring consideration of various financial metrics and projections.