Final answer:
A statement of cash flows primarily illustrates the cash transactions within a company and does not specifically show profit changes, which are shown on the income statement. Trade surplus leads to a net outflow of financial capital, while a trade deficit leads to a net inflow.
Step-by-step explanation:
The statement, "A statement of cash flows depicts the way profits have changed during a designated period," is false.
A Statement of Cash Flows is a financial document that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities. It does not specifically depict profit changes but rather provides information on how cash is entering and leaving the company. Profits are instead reported in the income statement.
Regarding trade balances and the flow of financial capital, a trade surplus indicates that a country is exporting more than it imports, leading to a net outflow of financial capital to other countries. Conversely, a trade deficit indicates that a country is importing more than it exports, resulting in a net inflow of financial capital from abroad to balance the accounts.
Firms often need to find sources of financial capital other than profits to continue making real investments, especially during times of low profits or losses.