Tutorial – Financial Analysis

The Financial Analysis

The second part of the Reserve Study is really a lot of number crunching and estimating of costs. The financial analysis section of a Reserve Study uses the cost and life estimate information gained from the physical analysis to come up with a funding plan that provides for each component’s reserve funding needs. In many cases when we did our onsite inspection, the life and costs were readily apparent so we will have to determine the best estimate of costs and when replacements will be needed. The Financial Analysis evaluates the associations reserve fund balance and income. The financial analysis calculates a associations percent funded by comparing the actual reserve balance to a fully funded balance.  The reserve study then estimates the total annual contribution necessary to defray the future costs.

Can you do it yourself?

Some associations believe that they can create a reserve study with a spreadsheet. If you are an Excel expert and have Excel programming knowledge you might be able to replicate what our software does. However with lots of calculations and tables,  creating the projections  for the study is complex task. The opportunity for errors increases with complexity. We have completed thousands of reserves studies over the years and have the experiences and the tools to be successful.

What is Percent Funded?

The present status of the Reserve Fund is generally expressed in terms of “Percent Funded.” The amount that an association should ideally have in its reserve fund (according to the most recent reserve study) is called the Fully Funded Balance. The percentage of the actual amount in the reserve fund versus the ideal is said to be the account’s percent funded. For instance an association with an actual reserve fund balance of $50,000 and a theoretical fully funded balance of $100,000 is said to be 50% funded.