What is the result when annual debt service is subtracted from net operating income?

What is the result when annual debt service is subtracted from net operating income?

• A. Before-tax cash flow
• B. Net cash flow
• C. Cash flow after taxes
• D. Gross operating income

Answer: (A)

When you take net operating income and subtract the annual debt service, you’re left with cash flow before taxes. NOI represents the income after operating expenses but before financing costs and taxes, and debt service is the financing cost of the property (mortgage principal and interest). Subtracting debt service eliminates that financing cost, leaving the cash available before any tax obligations are considered. If you further subtract taxes, you’d get cash flow after taxes. Gross operating income and net cash flow refer to other stages: gross operating income is the total income before operating expenses, and net cash flow typically accounts for taxes or other deductions beyond BTCF.

When you take net operating income and subtract the annual debt service, you’re left with cash flow before taxes. NOI represents the income after operating expenses but before financing costs and taxes, and debt service is the financing cost of the property (mortgage principal and interest). Subtracting debt service eliminates that financing cost, leaving the cash available before any tax obligations are considered. If you further subtract taxes, you’d get cash flow after taxes. Gross operating income and net cash flow refer to other stages: gross operating income is the total income before operating expenses, and net cash flow typically accounts for taxes or other deductions beyond BTCF.