POINTS TO TEACH

What are the critical points to get across when you're teaching how to read a financial statement? "You want people to understand cash balances," says accountant Mark Shernicoff, of Zucker & Shernicoff. In accounting terminology, "cash" is defined as not just money in the bank, but money in a financial instrument with maturity of 90 days or less. "Investment" is defined as anything with a longer maturity than that.

The next thing to to teach them is the difference between "accrued expenses" (an expense that you've incurred but haven't paid for yet, like the building's water or electric bill) and "accounts payable" (expenses for goods and services purchased on credit).

The next and last step, Shernicoff says, is "to look at the [annual financial statement's] footnotes to get the full story. There'll be an explanation of the numbers, of contingencies such as pending lawsuits or a mortgage coming due. These are important things to know in evaluating the financial condition of your building."

Attorney Steven Wagner, a partner at Wagner Davis, advises residents at the annual meeting "to go to the opening pages and see current assets and liabilities. Current assets are how much money you have in your pocket. Liabilities are how much you have to pay right now. Next thing I do is to have them look at the year-to-year comparison, which is important since if you see there are major discrepancies in many columns, that may be the hallmark of poor management…. Do they budget well, or do they get hit with unexpected costs all the time?"

Lastly, he suggests, "Look at the table of cash flows. You want to see that some money is being spent currently to maintain the building. …. If you allow things to deteriorate, you're in fact liquidating your company. What you want to do is see that there are current investments in the property."

– Frank Lovece