What is one of the objectives of a Statement of Cash Flows?

One of the key objectives of a Statement of Cash Flows is to identify potential needs for additional financing. This financial statement provides critical insights into a company’s cash inflows and outflows over a specific period, categorizing them into operating, investing, and financing activities. By analyzing these cash flows, management and investors can determine how effectively the company generates cash from its operations and how it spends or invests that cash.

If a company consistently shows negative cash flow from operating activities, it could indicate a need for additional financing to cover operating expenses or fund growth initiatives. The Statement of Cash Flows helps stakeholders assess liquidity and solvency by revealing how cash is generated and used, which directly impacts decisions regarding financing needs. This understanding is essential for both internal management and external investors, as it helps gauge the company's ability to sustain operations and fund future projects.