What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to provide an overview of cash entering and exiting a business. This financial statement plays a crucial role in helping businesses understand their liquidity and the short-term viability of their operating expenses. It details how cash is generated from operating, investing, and financing activities over a specific period, allowing business owners and stakeholders to assess the company's ability to generate cash and fund its obligations.

By outlining cash inflows (such as revenues from sales or money received from loans) and outflows (like expenses, purchases, and dividend payments), the cash flow statement gives a comprehensive view of how money moves through the business. This information is essential for effective financial management, helping to ensure that a company can meet its operational needs and strategy without facing cash shortages.

In contrast, the other options focus on different aspects of financial reporting. Summarizing profit margins relates more to the income statement, which measures profitability rather than cash flow. Recording inventory changes pertains to internal accounting practices and inventory management rather than cash flow specifics. Analyzing historical revenue trends is a broader activity typically associated with financial analysis and strategy rather than the immediate cash position of a business.