What does a cash flow statement report?

A cash flow statement reports cash inflows and outflows over a specific period, making it a crucial financial document for understanding a company’s liquidity and overall financial health. This statement provides insight into how cash is generated and used in a business, showing the actual money flowing in and out during a set timeframe, typically categorized into operating, investing, and financing activities.

The focus on cash flows rather than profitability is significant; even if a company is profitable on paper, it may face cash shortfalls if its cash inflows do not match its outflows. This makes the cash flow statement vital for assessing the company's ability to manage its cash effectively and fulfill obligations without relying solely on accounting earnings.

Meanwhile, the other options focus on different aspects of financial analysis. While profitability and expenses play important roles in understanding a business's performance, they do not capture the cash management aspect that is essential for real-time operational decision-making. The net worth referenced in one of the choices refers to a balance sheet snapshot, which does not provide the ongoing cash flow dynamics captured in the cash flow statement.