What is the primary function of a cash flow statement?

The primary function of a cash flow statement is to track the cash inflows and outflows over a specific period. This financial statement provides valuable insights into a company’s liquidity, solvency, and overall cash management. By detailing cash generated from operating, investing, and financing activities, it helps stakeholders understand how a company is generating cash and how it is spending it. This information is crucial for assessing the financial health of the business, making it possible to identify trends, understand operational efficiency, and gauge the ability to meet obligations and fund future growth.

The other choices relate to different financial reporting aspects; for instance, summarizing total income pertains to the income statement, a balance sheet provides a snapshot of assets and liabilities at a specific moment, and earnings projections belong to budgeting or forecasting processes. Each serves its unique purpose in financial analysis but does not encapsulate the core function of the cash flow statement as effectively as tracking cash movement does.