Which of the following is true about the cash flow statement?

The correct choice highlights that the cash flow statement shows the liquidity of a business over time. This financial statement provides a clear picture of how cash is generated and used in the business across different activities: operating, investing, and financing. By tracking these areas, the cash flow statement helps stakeholders understand how well a company can manage its cash to cover obligations and support operations. It serves as a critical tool for assessing both short-term financial health and long-term viability since it illustrates the inflows and outflows of cash over specific periods.

Evaluating a company's liquidity is essential because it reveals its ability to meet immediate financial obligations, navigate unforeseen expenses, and fund future growth opportunities. Therefore, this aspect is vital for investors, management, and creditors when analyzing the overall financial condition of the business.