How to calculate FFO?
Understand the Problem
The question is asking for the method or formula to calculate Funds From Operations (FFO), which is a financial metric used primarily by real estate investment trusts (REITs) to measure cash generated from operations.
Answer
FFO = Net Income + (Depreciation + Amortization + Losses on sale of assets) - (Gains on sale of assets + Interest Income)
The final answer is FFO = Net Income + (Depreciation expense + Amortization expense + Losses on sale of assets) - (Gains on sale of assets + Interest Income)
Answer for screen readers
The final answer is FFO = Net Income + (Depreciation expense + Amortization expense + Losses on sale of assets) - (Gains on sale of assets + Interest Income)
More Information
FFO is primarily used to measure the operating performance of Real Estate Investment Trusts (REITs), providing a clearer picture by excluding depreciation and gains from property sales, which are non-operating figures.
Tips
A common mistake is to forget to subtract interest income, which is necessary to avoid inflating the FFO.
Sources
- Funds From Operations (FFO): A Way to Measure REIT Performance - investopedia.com
- Funds from Operations (FFO) | Formula + Calculator - Wall Street Prep - wallstreetprep.com
- Funds From Operations (FFO): Definition, Calculation - Investing.com - investing.com
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