What is the relationship between the statement of cash flows and the other financial statements?

The statement of cash flows is intricately connected to both the income statement and the balance sheet, making it essential to understanding a company's financial health. It provides insights into the cash generated and used in operating, investing, and financing activities over a specified period.

The relationship with the income statement comes from the fact that net income is the starting point for the cash flows from operating activities. Adjustments are made to reconcile net income to net cash provided by operating activities by accounting for non-cash items, like depreciation and changes in working capital.

Additionally, the statement of cash flows incorporates data from the balance sheet by reflecting changes in cash and cash equivalents during the reporting period. The balance sheet allows analysts to assess how operational cash flow might be affected by changes in assets and liabilities.

By utilizing information from both the income statement and balance sheet, the statement of cash flows effectively provides a complete picture of how a company manages its cash, highlighting its liquidity and financial viability. This comprehensive insight is crucial for stakeholders, allowing them to gauge the company's performance beyond just profitability represented in the income statement.