A cash flow statement is a financial report that shows how cash moves in and out of a business during a specific period. It helps investors, managers, and analysts understand how well a company generates cash to meet its obligations, fund operations, and support growth. Unlike the income statement, which records revenues and expenses based on accounting rules, the cash flow statement focuses strictly on actual cash transactions.

The statement is divided into three main sections: operating activities, investing activities, and financing activities. Operating activities include cash generated from core business operations, such as sales revenue and payments to suppliers or employees. Investing activities reflect cash used for buying or selling assets like equipment, property, or investments. Financing activities show cash flows related to borrowing, repaying loans, issuing shares, or paying dividends.

A positive cash flow from operating activities indicates that the company’s core business is generating enough cash to sustain itself. Strong cash flow is often seen as a sign of financial health, even if accounting profits are lower. Conversely, negative cash flow may signal financial difficulties if it continues for an extended period.

Investors use the cash flow statement to evaluate liquidity, financial flexibility, and long-term stability. By analysing this statement, stakeholders can make more informed decisions about investing, lending, or managing the company.