What is the primary function of a cash flow statement?

The primary function of a cash flow statement is to track cash inflows and outflows. This financial report provides a comprehensive view of how cash is generated and used within a business over a specific period. By detailing the sources of cash (such as operating activities, investing activities, and financing activities) and the amounts spent (on expenses, asset acquisitions, and debt repayments), the statement reveals the liquidity position of the company.

This information is crucial for stakeholders as it allows them to assess the company's ability to meet its short-term obligations, fund its operations, and make investments. Properly analyzing cash flow helps in financial planning, management, and decision-making processes, which are essential for both growth and sustainability of the business.

In contrast, while profitability (as mentioned in the first option) is important, it is determined by revenues and expenses rather than cash movement. Insights into financial ratios (the second option) often rely on data from multiple financial statements rather than focusing solely on cash flows. Calculating total revenue (the fourth option) is a component of measuring performance but does not encompass the broader function of understanding cash flow management within a company.