Final answer:
The statement of cash flows is a financial report that reveals the reasons behind the change in a company's cash balances during a particular period, by breaking down cash flows from operating, investing, and financing activities.
Step-by-step explanation:
The statement of cash flows is a crucial financial report that businesses use to track the inflows and outflows of cash within an accounting period. Specifically, the statement is a change statement, disclosing the events that caused cash balances to change during the period. The statement breaks down the cash generated or used from operating activities, investing activities, and financing activities.
Understanding the statement of cash flows is essential for stakeholders who want to know how a company manages its cash, how solvent, liquid, and viable it is. It reveals the company's ability to pay bills, finance its operations, and grow. The changes in cash can come from profit earned or lost, changes in working capital, capital expenditures, issuance or repurchase of securities, and taking or paying off debts.