What is the primary purpose of the statement of cash flows?

The primary purpose of the statement of cash flows is to provide information about cash inflows and outflows during a specific period. This financial statement is crucial for understanding how a company generates and uses cash, offering insights beyond what the income statement and balance sheet can provide. By breaking down cash movements into operating, investing, and financing activities, it allows stakeholders to assess the company’s liquidity, financial flexibility, and overall cash management.

This information is vital for various users, including investors, creditors, and management, as it helps them evaluate the company's ability to generate future cash flows, pay dividends, and meet obligations. Understanding cash flow is essential because it highlights the actual cash position of the business, which can differ significantly from accounting profits reported on the income statement.

The other options do not embody the primary purpose of the statement of cash flows. While net income is important, it is only part of the overall picture of financial health, and equity changes or accounting policies do not specifically revolve around cash management or cash generation, which are the focal points of the cash flow statement.