What does a Cash Flow Statement tell us?

What does a Cash Flow Statement tell us?

• A. Cash inflow (receipts) and cash outflow (payments)
• B. Net profit of the business
• C. Total sales revenue
• D. Market share and growth

Answer: (A)

A cash flow statement shows how cash moves in and out of the business over a period, focusing on cash receipts and cash payments. It identifies where cash comes from (like customer receipts or loans) and where it goes (such as supplier payments, wages, or purchases of equipment). This is all about liquidity—whether the business has enough cash to pay its bills and fund activities, even if it’s profitable on paper. Net profit and total sales are accounted for in the income statement, and market share and growth relate to position in the market, not cash movements.

A cash flow statement shows how cash moves in and out of the business over a period, focusing on cash receipts and cash payments. It identifies where cash comes from (like customer receipts or loans) and where it goes (such as supplier payments, wages, or purchases of equipment). This is all about liquidity—whether the business has enough cash to pay its bills and fund activities, even if it’s profitable on paper. Net profit and total sales are accounted for in the income statement, and market share and growth relate to position in the market, not cash movements.