Ace the AFP Exam 2026 – Boost Your Financial Wizardry!

The cash flow statement is specifically designed to provide detailed insights into how cash is generated and utilized within a business during a specific period. It breaks down cash flows into three main activities: operating, investing, and financing activities. This distinction allows stakeholders to assess the liquidity position of a company, understand its operational efficiency, and evaluate its ability to generate cash from core business operations.

In contrast, the income statement primarily reflects a company’s revenues and expenses, offering an overview of profitability rather than a direct insight into cash movements. The statement of retained earnings focuses on the changes in equity and is concerned with how profits are reinvested or distributed, rather than providing cash flow information. The balance sheet presents a snapshot of a company’s assets, liabilities, and shareholder equity at a specific point in time, which does not reflect cash flows or the timing of cash movements.

Using the cash flow statement is crucial for stakeholders who want to understand a company’s financial health, particularly in terms of its cash liquidity and operational sustainability.