What is the purpose of cash flow statement?
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A cash flow statement is a financial document that provides a detailed summary of a company's cash inflows and outflows over a specific period, typically divided into operating, investing, and financing activities. Its main purposes are:
1. **Assess liquidity**: It shows how well a company manages its cash to cover short-term liabilities and day-to-day operations, helping stakeholders assess the company's liquidity position.
2. **Monitor cash generation**: The statement highlights how much cash is generated from core business operations, separate from other activities like investments or financing. This helps determine whether a company can sustain its operations without relying on external funding.
3. **Evaluate financial health**: By showing cash from operating, investing, and financing activities, the cash flow statement provides insights into the overall financial health of a company. It helps investors and managers understand how cash is being utilized and whether the company is generating enough cash to fund future growth or dividends.
4. **Decision-making tool**: It assists management in making decisions related to budgeting, investment opportunities, and financing needs by providing a clear view of the company's cash position.
In summary, the cash flow statement is critical for evaluating a company's cash liquidity, operational efficiency, and financial stability, which are essential for both internal management and external stakeholders like investors and lenders.
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