What is the primary purpose of a cash flow statement?

The primary purpose of a cash flow statement is to track the inflows and outflows of cash. This financial statement provides crucial insights into how a company manages its cash position, detailing where the cash comes from (cash inflows) and where it goes (cash outflows) during a specific period.

By analyzing the cash flow statement, stakeholders can understand the liquidity and cash management practices of a business, which are essential for maintaining operational stability. Unlike other financial statements such as the income statement, which focuses on profitability, the cash flow statement emphasizes actual cash generated and spent, allowing businesses and investors to assess operating efficiency, investment activities, and funding needs. This information is vital for making informed financial decisions, managing short-term liquidity, and planning for future cash needs.

The other options do not capture the essence of the cash flow statement's function. For instance, tracking profitability is primarily the focus of the income statement, while monitoring asset depreciation is relevant to the balance sheet. Evaluating credit risk is more closely aligned with financial analysis based on various assessments, including but not limited to cash flow data.