What is the main purpose of the Statement of Cash Flows?

The main purpose of the Statement of Cash Flows is to assess the company's ability to generate cash. This financial statement provides insight into the liquidity and financial flexibility of an organization by detailing the sources and uses of cash during a specific period. It categorizes cash flows into three main sections: operating activities, investing activities, and financing activities.

By examining the cash flows from operations, investors and stakeholders can understand how well a company can generate cash from its core business activities. This is crucial for assessing the company's ability to meet its short-term obligations, invest in future growth, and return capital to shareholders. The statement helps provide a clearer picture of the company's cash management than the income statement, which may include non-cash accounting items.

In contrast, entities like the income statement focus on revenues and expenses, which may not reflect actual cash movements. Profit margin analysis and return on investment calculations can provide insights into profitability and performance, but they do not specifically gauge cash generation capabilities the way the Statement of Cash Flows does. Consequently, while all the options provide valuable financial insights, the paramount objective of the Statement of Cash Flows lies in evaluating cash generation and liquidity.