What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to illustrate the actual cash inflows and outflows of a business over a specified period. This financial statement provides critical insights into how well a company generates cash to meet its obligations and fund its operating expenses, investments, and financing activities. By detailing the sources of cash (operations, investments, and financing) and how that cash is utilized, the statement allows stakeholders to assess the liquidity and cash management of the business.

In contrast to other financial statements, such as the income statement that focuses on profitability, the cash flow statement emphasizes cash transactions. It captures the timing of cash movements, which is vital for understanding a firm's financial health. Thus, it aids in evaluating whether the company can sustain and grow its operations.

The other options focus on aspects that do not pertain directly to the cash flow statement's primary intent. Profitability relates to income statements, while listing assets or highlighting liabilities pertains to the balance sheet, which presents a snapshot of what the company owns and owes at a specific point in time. Therefore, the focus on incoming and outgoing cash distinguishes the cash flow statement as a unique and essential financial tool.