Like any good business, finances are of utmost importance for everything you do. Businesses thrive on their financial well-being. It’s important for businesses to know their financial standing and how to grow in that category. Financials, such as Cash Flow Statements, are used to give you a quick snapshot of your company or investment’s financial health. Cash Flow is a stream of money and is how every business operates. Pro Forma, another financial document, handles more hypotheticals of your business's finances. Each are incredibly important in your assessment of your finances.
Every business will have income and expenses, and your Cash Flow Statements will help you best predict whether you’re going to be profitable or exposed to a loss.
Real estate managers use these trends and data packs to help analyze a property. There are two main categories you need to be aware of: valuation analysis and investment analysis.
Valuation analysis is maximizing the earning power of property by understanding and studying the income and expenses, leading to the Net Operating Income.
Investment analysis, which is what meets the goals of the owner through understanding and studying the financing and taxes, leading to something called “before-tax cash flow” and “after-tax cash flow.” Before-tax cash flow is the amount of money that remains after operating expenses but before taxes are examined. After-tax cash flow is all of that but simply after taxes are examined. After you know this number you will understand the “net profit” of the property.
Another financial document to be aware of is what’s known as a Pro Forma. This document is defined by Investopedia as, “Pro-forma earnings describe a financial statement that has hypothetical amounts, or estimates, built into the data to give a ‘picture’ of a company's profits if certain nonrecurring items were excluded.”
There are some monthly expenses such as keeping the lights on at the office or utilities. Those need to play a role when a business is budgeting and figuring out their financial stature. Pro Formas keep out those “one-time” expenses such as a sign for an event or taking a client out to lunch. These are expenses that don’t happen very often so they can be “hypothetically” left out.
Pro Formas are more for the companies rather than an actual earnings report. Pro Formas help companies see the company’s true performance overall, due to it’s exempting the one-time payments.