A cash flow statement reports the change in 'cash and cash equivalents' by classifying the inflows and outflows into three categories. Hence, one needs to understand the terms cash and cash equivalents. Cash includes cash on hand and demand deposits with banks and other items such as cheques, and money orders acceptable for deposit in a bank account.

Managers often invest idle cash in some short-term, highly liquid investments that can be readily converted into cash with little risk of loss. Such short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value are called cash equivalents.

The objectives of the cash flow statement can be enumerated as follows:

1. To Assess the Cash Generated from Operating Activities: The cash flow statement is prepared to provide information on the cash generated in operating activities. It explains what part of the net profit is realized in the form of cash. Calculation of net profit on cash basis is very important to assess the provision of cash from internal sources. 

2. Dividend Payments:  The information on cash flows is vital for the payment of dividends because dividend decisions cannot be taken based on profits alone. Availability of cash is important for dividend disbursement.

3. Details of External Financing: Along with the information on the cash generated from operating activities, the statement also provides information on cash flows from non-operating activities, namely investing activities and financing activities. Thus, it gives information on external financing and details of investment of cash resources. This is very useful to assess the liquidity position of the business and its ability to meet cash commitments.

4. Helpful in Planning: Cash planning and preparation of cash budget is made possible with the historical cash information provided by the cash flow statement. Cash flows from operating activities are projected and cash required for acquisition of assets for expansion and growth of the business along with repayments is estimated.

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