Final answer:
The statement of cash flows is crucial for determining a company's future external financing needs by showing the cash inflows and outflows, providing insight into operational efficiency and capital requirements.
Step-by-step explanation:
The statement True reflects the role of the statement of cash flows in determining the future external financing needs of a business firm. This financial document provides crucial insights into a company's cash inflows and outflows over a period. When analyzing the statement of cash flows, you can see the cash generated from operations, which is important for understanding the company's ability to operate without external funds. Moreover, cash flows from investing activities indicate how much is being reinvested into long-term assets, and cash flows from financing activities show the transactions related to debt and equity. If a company's operations are not generating enough cash to meet its investment and potential dividend requirements, it may need to seek external financing either through borrowing or issuing more equity.