Final answer:
The Statement of Cash Flows provides information about a firm's cash inflows and outflows, helping to understand its liquidity and ability to meet short-term obligations.
Step-by-step explanation:
The primary purpose of the Statement of Cash Flows is to provide information about a firm's cash inflows (receipts) and outflows (payments) over a specific period of time. It shows how cash is generated and used by the firm, providing insights into its liquidity and ability to meet its short-term obligations.
The Statement of Cash Flows is divided into three main sections: operating activities, investing activities, and financing activities. These sections help users understand the sources and uses of cash from the firm's core operations, investments, and financing activities.
For example, the operating activities section shows how much cash was generated from the firm's day-to-day operations, such as selling goods or services. The investing activities section indicates cash flows from buying or selling long-term assets, such as equipment or real estate. The financing activities section reveals cash flows related to raising capital, such as issuing stock or taking out loans.