The statement of cash flows shows the cash inflows and the cash outflows of the business. A company might have the most loyal customers and most co-operative suppliers but there is no chance that they will not need cash for its day to day operations. A cash flow statement shows the amount of money (cash) that the company managed to bring from the operating activities, the cash that it paid or received from investing activities (purchase or disposal of property, plant and equipment for example) and the cash paid or received from the financing activities (loans, dividends etc).
There is no doubt that a company that has high cash outflows and low cash inflows will face insolvency problems. The latter makes the statement of cash flows quite important.
The statement of cash flow shows the cash inflows and the cash out flows of a given company for a year. The balance sheet and the income statement are prepared on an accrual basis but the cash flow statement is the only statement that shows the actual cash position of the company.
It’s divided in three different sections : operating activities, investing activities, financing activities.
It’s a really important statement since it shows the cash generated from the every day operations and the cash paid out to generate sales. It also shows how well a company is doing in controlling cash payments that are not necessary (bonuses etc).