What does a statement of cash flows provide insights into?

A statement of cash flows is designed specifically to provide detailed insights into a company's cash inflows and outflows over a certain period. This financial statement breaks down cash movements into three main categories: operating activities, investing activities, and financing activities.

The operating activities section shows the cash generated from core business operations, which reflects the company's ability to produce cash from its regular business activities. Investing activities detail cash flows related to the acquisition or disposal of long-term assets, revealing how the company is investing for future growth. Financing activities demonstrate how cash is raised through debt and equity, and how it is used to pay dividends and repay debt.

Together, these sections allow stakeholders to assess the liquidity of the business, understand how well it generates cash to cover expenditures, and evaluate its overall financial health. This information is crucial for investors, creditors, and management. Thus, the statement of cash flows is an essential tool in analyzing a company's financial situation, specifically focusing on cash rather than profit, which may include non-cash items.