A cash flow statement is necessary because net income is typically viewed using accrual-based accounting. This type of accounting gives a picture of a business's finances based on when activities are completed versus when cash outlays are made. A company with a profitable income statement but insufficient cash flows is not likely to be a profitable investment, as it will not have the necessary cash to continue operations.The cash flow statement shows a company's ability to generate cash, which is crucial in understanding the profitability and viability of any company.Comparing changes in cash flow from one period to the next sheds important information about the company's direction.