Accounting Principles and Procedures

Question 1

• What are the 3 main purposes for accounting?

Answer 1

1. Tax & Regulation
2. Internal monitoring purposes and performance management
3. External analyst to make investment decisions

Question 2

• Give me an example of a financial ratio?

Answer 2

One example of a financial ratio would be the solvency ratio – ICR – NOI divided by interest payments. Net operating income is income – operating expenses

Question 3

• When would you use your example of a financial ratio?

Answer 3

To understand a company’s solvency – i.e. its stability and whether it could continue paying its interest expense.

Question 4

• What does ICR tell you?

Answer 4

How many time over the noi can cover the interest payments – often used in debt

Question 5

• What do you mean by company strength, how would you go about identifying this?

Answer 5

You could do this using public documentation and review the financial ratios on company’s house. You could also action a Dun & Bradstreet report – this gives companies a rating based on their solvency and sustainability over the next 12m – 5a1 is the highest classification.

Question 6

• How do you assess credit reports?

Answer 6

There is an overarching score, but it also goes into details on overall business risk – a focus on the ntm and predicted risk of failure.

Question 7

• Why is the strength of the operator important?

Answer 7

They are the operations of the business – They are effectively the property manager and are responsible for generating income on the property.

Question 8

• What training did you undertake? What did you learn? How does accounting measure performance?

Answer 8

Learnt about the ratios and how they can be interpreted to measure performance and solvency

Question 9

Give an example of a liquidity and profit ratio?

Answer 9

Current ratio = current assets/current liabilities
Cash ratio = cash + short term market securities / current liabilities
Operating profit margin = NOI/ income

Question 10

What des a Dunn and Bradstreet Report tell you?

Answer 10

Overall score, business risk, stability over the next 12 months, risk of failure and delinquency

Question 11

Difference between P&L and Balance Sheet?

Answer 11

a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time

The profit and loss statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.

Question 12

What is the difference between a balance sheet and P&L?

Answer 12

Balance sheet is a reflection of performance at a point in time
P&L is an income statement over a designated period