What do the three parts of the statement of cash flows primarily explain?

The three parts of the statement of cash flows are designed to provide a comprehensive overview of the sources and uses of cash within a business over a specific period. This financial statement is divided into three main sections: operating activities, investing activities, and financing activities.

The operating activities section details cash flows from the core operations of the business, showing how cash is generated from sales and how it is used for operational expenses. The investing activities section reflects cash flows related to the acquisition and disposal of long-term assets, indicating how much cash is being invested for future growth or returned from investments. Finally, the financing activities section outlines cash flows related to borrowing and equity financing, clarifying how a company raises capital and repays debt.

By detailing these components, the statement of cash flows helps stakeholders understand the liquidity and financial flexibility of the organization, enabling better decision-making and analysis of the cash-generating ability of the business.

In contrast, the other options focus on narrower aspects of financial performance or management that do not encompass the full scope of what the statement of cash flows covers. The statement is not primarily about revenue sources, employee expenditures, or inventory management techniques, which are more specific and do not reflect the complete view of cash flow dynamics in an organization.