What does a cash flow statement show?

A cash flow statement provides a detailed account of how cash flows into and out of a company over a specific period, typically broken down into operating, investing, and financing activities. This financial statement is crucial for understanding the liquidity and financial health of a business, as it shows how well the company generates cash to pay its obligations and fund its operating expenses.

By categorizing cash flows in this manner, stakeholders can assess whether a company is generating enough cash from its core operations, whether it is investing wisely, and how it is financing its operations, whether through debt or equity. This understanding aids in evaluating the company’s short-term viability and overall financial performance.

The other choices do not accurately describe the function of a cash flow statement. While the profit or loss of a company is revealed in the income statement, asset allocation is explored in the balance sheet, and shareholder equity position is assessed through the equity section of the balance sheet. Thus, the cash flow statement uniquely focuses on cash movements, making option A the correct answer.