Financial Analysis and Reporting Flashcards

A manager receives a utility bill that is $3,000 higher than the same month last year. Which analysis technique isolates whether the increase is due to rate changes or consumption changes?

Answer: Price-volume variance analysis

Price-volume variance splits a cost change into the portion caused by rate (price) versus usage (volume).

Which of the following best describes 'accrual basis' accounting as it applies to apartment properties?

Answer: Revenue and expenses are recorded when earned or incurred, regardless of when cash is exchanged

Accrual accounting matches income and expenses to the period they relate to, not when cash moves.

A property manager is asked to compute the 'expense ratio.' Which formula is correct?

Answer: Total operating expenses ÷ Effective gross income

The expense ratio = total operating expenses / EGI, showing the share of income consumed by expenses.

When a lender requires a DSCR of at least 1.25 and the property's NOI is $250,000, what is the maximum allowable annual debt service?

Answer: $200,000

Max debt service = NOI / Required DSCR = $250,000 / 1.25 = $200,000.

In an apartment financial statement, 'concessions' and 'bad debt' are typically shown as:

Answer: Deductions from gross potential rent to arrive at EGI

Both concessions and bad debt reduce the revenue side of the statement, lowering EGI before expenses are subtracted.

A capital expenditure (CapEx) differs from an operating expense primarily because CapEx:

Answer: Provides benefit over multiple years and is depreciated over its useful life

CapEx assets provide long-term value and are depreciated over their useful life rather than expensed immediately.

A property shows a favorable budget variance in payroll. This MOST likely means:

Answer: Actual payroll costs were lower than budgeted

A favorable variance means actual spending came in below the budgeted amount, indicating lower-than-expected payroll costs.