How do you calculate Cash Flow Before Tax?

• A. NOI − Debt Service
• B. NOI + Debt Service
• C. GPR − Operating Expenses
• D. EGI − Operating Expenses

Answer: (A)

Cash Flow Before Tax is the cash left after operating performance is accounted for and after servicing the debt, but before taxes. Start with Net Operating Income, which is what the property earns after operating expenses but before financing and taxes. Then subtract the annual debt service (principal and interest) to arrive at Cash Flow Before Tax.

In formula form: Cash Flow Before Tax = NOI − Debt Service = (Effective Gross Income − Operating Expenses) − Debt Service.

For context, if Effective Gross Income is $200,000 and Operating Expenses are $70,000, NOI is $130,000. If annual Debt Service is $40,000, Cash Flow Before Tax would be $90,000. This shows the impact of financing on the property's cash flow.

The other options don’t represent this measure. Subtracting operating expenses from Gross Potential Rent or from Gross Rent ignores vacancy losses and other adjustments that NOI already accounts for, and EGI minus Operating Expenses gives NOI, not the cash flow after financing.