Analyzing Your Financial Statements
By George E. Dube, CPA, CA and Peter Cuttini, CPA, CA, LPA (CPA Illinois)
As a real estate investor, one of the most important skills you possess is the ability to analyze the numbers on the deals you are about to enter, and on the current investments you hold. Looking at a set of corporate financial statements, for example, is a crucial step in deciding on investing in a new joint venture, buying a potential property, or knowing that your current portfolio of properties is performing to its best ability. Financial statements give you the opportunity to look back and see the big picture. How are you doing? What has changed? What will this mean for taxes? More importantly, where are you going?
To help give you a real feel for analyzing the numbers in a set of statements, we asked Alexandra Witmer, CPA, CA, of our office to create a set of Notice to Reader financial statements for the fictional Robins Nest Hold Co., a real estate company with long-term holds for residential rental.
Notice To Reader Financial Statements What does this really mean?
Robins Nest Hold Co. is required to prepare a Notice to Reader (NTR) form of financial statements each year. A Notice to Reader is just that a notice on the page before the Balance Sheet that states that the financial statements are the responsibility of management and that an audit or review was not performed. By specifying that the NTR is not an audit or review, this means that it is the lowest level of assurance provided. When we prepare an NTR, the numbers are checked for mathematical accuracy, but not audited. This is why the last line of a NTR cautions readers of the financial statements that these statements may not be appropriate for their purposes.
The NTR is an important reminder to you that, even though we as accountants have physically prepared the financial statements, technically they were prepared by management as you provided the figures and approved any adjusting entries the accountants suggested. As well, this is a key piece of information for your financial institution to know if they ask to get a copy of the statements.
To read the article in its entirety, and to view the related balance sheet, income statement, and more, please click here.