READINGS - Cash Flow as an Indicator of Financial Performance Flashcards
What is cash flow in real estate?
A profit measure used to evaluate financial performance
What is the equation for cash flow?
Cash Flow = NOI - Debt Service - Capital Expenditures
What does NOI stand for?
Net Operating Income
How is cash flow viewed differently among partners?
Each partner evaluates cash flow based on their investment objectives and tax positions
What is effective gross income (EGI)?
EGI accounts for gross potential rental income minus vacancy and rent loss
What is the relationship between cash flow and break-even analysis?
Cash flow is a gauge of profitability tied to break-even analysis
Fill in the blank: Cash flow can be derived by subtracting _______ from NOI.
[Debt Service and Capital Expenditures]
What does the occupancy rate indicate in relation to cash flow?
It can be used to predict cash flow
True or False: Cash flow is property specific and can be controlled by the real estate manager.
False
What is the effect of capital expenditures on cash flow?
They reduce cash flow when subtracted from NOI
What is the formula to calculate cash flow using occupancy and break-even rates?
Cash Flow = (Gross Possible Income x Occupancy Rate) - (Gross Possible Income x Break-even Rate)
What is the significance of cash flow in financial planning?
It is an important factor in profitability planning and budgeting
List two components that must be subtracted from NOI to determine cash flow.
- Debt Service
- Capital Expenditures
What does gross potential rental income refer to?
The total income that could be generated if all units were rented at full price
