How is Operations Cash Flow calculated?

Operations Cash Flow refers to the cash generated from the property's operational activities before financing costs and taxes are deducted. The correct answer, which involves subtracting Annual Debt Service from Net Operating Income (NOI), accurately reflects the amount of cash flow available to the property owner after accounting for the costs of servicing debt associated with that property.

Net Operating Income (NOI) represents the revenue generated from the property after operating expenses are deducted but before any financing costs, taxes, or other non-operating expenses. By subtracting Annual Debt Service, which includes payments made towards interest and principal on loans, you arrive at the Operations Cash Flow. This figure is particularly important as it indicates the cash available not just for reinvestment into the property, but also for distribution to owners or for other financial commitments.

The other methods listed would not accurately measure the true operational cash flow. For example, adding Debt Service to NOI does not give a valid representation of cash flow since it effectively inflates the operational income without considering expenditures. Similarly, dividing NOI by Debt Service could distort the relationship between income and debt obligations, failing to provide meaningful insight into cash availability. Lastly, adding Annual Taxes to NOI similarly overlooks the critical aspect of how debt obligations impact the available cash. Therefore,