What is the statement of cash flows designed to show?

The statement of cash flows is a financial statement designed to show how cash moves in and out of a business over a specific period of time. It categorizes cash flows into three main activities: operating, investing, and financing. This categorization helps stakeholders understand the sources of cash (inflows) and how it is spent (outflows).

By focusing on cash, the statement provides insights into a company's liquidity and solvency, highlighting its ability to generate cash from core operations, invest in long-term assets, and manage financing activities. This makes it crucial for assessing the overall financial health of the business, beyond what net profit margins, fixed asset investments, or stockholder equity trends may indicate individually.