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HUD Guidance For Financial Statement Analysis
MAP Guide Chapter 8.4 – Firm Commitment Processing Financial Statements
MAP Guide Appendix 8C – How To Analyze Financial Statements
HUD Guidance For Financial Statement Analysis
CPA Audited or Reviewed Financial Statements
Internal Unaudited Financial Statements
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Types of Financial Statements
Balance Sheet Also referred to as Statement of Financial Position
Provides financial balances as of a specific date – “snapshot in time”
Account balances generally in order of liquidity Operating Statement
Also referred to as Income Statement or Profit and Loss (P&L)
Provides income and expenses during a particular period
Includes both cash and non-cash expenses Personal Financial Statement
Balance Sheet format for an individual
Individual income and expenses can be analyzed on Income Tax Return
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Balance Sheet Basics
Total Assets = Current Assets + Long-Term Assets
Current Assets – Cash and other assets convertible into cash during the normal operating cycle of business operations or 1 year, whichever is less (MAP Appendix 8C.A)
Long-Term Assets – Assets that are not easily converted into cash.
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Balance Sheet Basics
Total Liabilities = Current Liabilities + Long-Term Liabilities
Current Liabilities – Payables due during the normal operating period or 1 year, whichever is less (MAP Appendix 8C.B)
Long-Term Liabilities – Liabilities with a future benefit exceeding one year
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Current Assets
Cash and Cash Equivalents Cash In Bank – Operating and Savings Accounts
Money Market Holdings
Treasury Bills
Short-Term Bonds Near Maturity
Escrow Deposits – Taxes, Insurance, Reserve for Replacement
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Current Assets – Cont.
Marketable Securities Equity Securities – Common Stocks
Debt Securities - Bonds
Derivative Contracts – Forwards, Options, Futures and Swaps
Are these securities publically traded or privately held?
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Current Assets – Cont.
Accounts Receivable
Amounts owed to a business by its clients (customers or debtors) for goods or services purchased on credit
Detail support for account balance is listing of clients to whom credit has been extended and passage of time from the date credit was extended (A/R Aging Schedule)
Credit can be extended to officers, employees or related entities
Balance often shown net of Allowance for Bad Debts
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Current Assets – Cont.
Notes Receivable
Amounts owed to a business with a principal amount secured by a promissory note
Terms of note may stipulate that a portion of the principal is not due within one year of the balance sheet date
As with Accounts Receivable, notes can be entered into with officers, employees or related entities
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Current Assets – Cont.
Inventory
In process or finished goods held for sale
Not typically found on the financial statement of a real estate related entity
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Current Assets – Cont.
Work In Process – General Contractors Only
Costs in Excess of Billings – job costs for work that has been completed but has not been billed
Also referred to as under-billings
Billings in Excess of Costs – work has been billed but has not been completed
Also referred to as over-billings
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Current Assets – Cont.
Prepaid Expenses
An asset that arises on a balance sheet as a result of payments for goods or services for which the benefit will be received in the future
Insurance is the most common form of prepaid expense
The benefit of the good or service is re-classified to the Income Statement over time as the benefit is realized
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Non-Current Assets
Fixed Assets
Long-term property that is not easily converted to cash
Examples: Land, Buildings, Machinery, FF&E
Accounting rules stipulate that these assets are recorded on the balance sheet at cost
The cost is then depreciated over time based on the estimated life of the fixed asset
Land is similarly recorded at cost but is not depreciated
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Intangible Assets
Common examples are goodwill, patents and trademarks
An economic benefit of the intangible is estimated over a period of time
The benefit is then amortized over time based on the estimated life of the intangible
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Current Liabilities
Accounts Payable
Amounts owed by a business to its suppliers
Similar to receivables, detail support for account balance is listing of suppliers to whom monies are owed and passage of time from the date goods or services were purchased (A/P Aging Schedule)
Monies can be payable to officers, employees or related entities
Detail is a valuable indicator of an entity’s ability to meet its ongoing obligations
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Current Liabilities – Cont.
Accrued Expenses
Expenses which are anticipated thus are recognized on the balance sheet before they are actually paid for
Accrued expenses are typically paid for within 1 year
Common accrued expenses are bonuses, interest and taxes
An accrual should be made for any expense that is reasonably probable and that can be reasonably estimated
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Non-Current Liabilities
Long-Term Debt
Loans that have maturities more than one fiscal year into the future
Scheduled principal payments to be made during the current fiscal year are classified as current liabilities
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Non-Current Liabilities
Other Examples
Leases – Certain long-term leases are accounted for similarly to loans. These leases have a current and long-term portion depending on the schedule of lease payments to be made.
Employee Benefits – Companies may offer long-term benefit plans to employees which are not payable to the beneficiary until retirement
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Operating Statement Basics
Net Income = Revenue Less Expenses
Total revenue includes both operating revenue and financial revenue
Expenses include operating expenses, financial expenses and non-cash expenses
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Revenue
Operating Revenue
Rents
Miscellaneous Income Items – Application Fees, NSF Charges, Pet Fees, Laundry & Vending Income
Financial Revenue
Interest Income
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Expenses
Operating Expenses
Administrative – Advertising, Management Fees, Other
Operating – Utilities, Payroll, Other
Maintenance – Repairs, Exterminating, Insurance, Grounds
Replacement Reserve Deposits
Real Estate Taxes
Other Taxes – Payroll, Personal Property
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Financial Statement Ratios
Balance Sheet
Working Capital = Current Assets less Current Liabilities
Equity or Net Worth = Total Assets less Total Liabilities
Income Statement
Operating Expense Ratio = Operating Expenses divided by Operating Revenue