What does the statement of cash flows primarily report?

The statement of cash flows is a crucial financial statement that provides insights into the cash movements of a business over a specified period. It primarily reports how cash is generated and used in the operations of the company, including cash from operating, investing, and financing activities. By detailing these cash inflows and outflows, this statement helps users understand the liquidity and financial flexibility of the business.

The emphasis on cash movements is essential because it highlights the company’s ability to generate cash to meet its obligations, invest in future growth, and distribute dividends to shareholders. Unlike the income statement, which may include non-cash items and can reflect profits that do not translate to cash in hand, the statement of cash flows focuses exclusively on actual cash transactions, giving a clearer picture of the company's cash position.

Thus, identifying cash movements over a period offers valuable information for investors, creditors, and management when assessing the company's financial health and operational efficiency.