3. The Cash Flow ReportCopy

The cash flow statement is a core financial report that details the actual movement of money in and out of a business over a specific period (monthly, quarterly, or annually). It categorizes these cash flows into three main activities: operating, investing, and financing.

Why the Cash Flow Statement Is Important
The cash flow statement is crucial because it provides insights into a company’s liquidity (ability to meet short-term obligations) and solvency (ability to meet long-term debts), which the other primary financial statements (income statement and balance sheet) may not fully capture.

Shows the actual cash position: Unlike the income statement, which uses accrual accounting (recording revenue when earned and expenses when incurred, regardless of when cash is exchanged), the cash flow statement focuses on actual cash transactions. A company can show a profit on its income statement but still run out of cash if it cannot collect receivables quickly enough.