HSC Business Studies Complete Practice Exam 2025

A cash flow statement is a financial report that details the cash inflows and outflows of a business over a specified period of time, typically a month, quarter, or year. This statement provides insight into how a company manages its cash, revealing the sources from which cash is generated (inflows) and how that cash is spent (outflows). It helps stakeholders understand the liquidity and operational efficiency of the business, allowing them to assess whether the business is generating enough cash to meet its obligations and invest in future growth.

Cash flow statements are crucial for determining the short-term viability of a company, as they reflect the actual cash available, rather than accounting profits which can include non-cash items. By examining the cash flow statement, investors, creditors, and management can gain a clearer picture of the company's ability to maintain and grow operations, pay debts, and finance capital expenditures.

In contrast, other choices may not fully represent the function of a cash flow statement. While future profits can be inferred from cash flows, the statement itself does not predict these profits. It also does not provide a blanket assessment of overall financial health, as that's more comprehensively covered by the balance sheet and income statement. Additionally, focusing solely on operational expenses would overlook significant cash flows