What Is Funds From Operations (FFO)?

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What Is FFO?
FFO Formula
FFO Calculation
Net income: This is the company’s profit and is listed on the bottom line of the income statement. It’s a GAAP measurement, but it's not always the best method for assessing the value of a REIT. Depreciation: This is an expense line item associated with the declining value of durable assets like property, plant, and equipment (PPE) and other fixed assets. However, real estate is different from most fixed-plant or equipment investments because property loses value infrequently. Instead, it often appreciates. Thus, it can make more sense to judge REITs by FFO, which excludes depreciation. Amortization: This is like depreciation but it’s done with intangible assets, such as licenses, patents, and copyrights. These items do decline in value over time (due to expiration), but since this is a non-cash expense, it does not impact cash flow. Losses and gains on property/asset sales: This typically includes long-term assets such as PPE. Because these losses and gains are considered one-time, or non-recurring, they are not part of normal operations and are not included in the FFO calculation. Interest income: Interest income is also considered a non-recurring item, and is removed to arrive at a REIT’s FFO.
Uses of FFO
FFO vs EBITDA Compared
Pros and Cons of Using FFO
What Makes FFO Good at Measuring REIT Performance?
Adjusted FFO vs FFO
FFO Calculation Example
The Takeaway
3 Small Business Loan Tips
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Frequently Asked Questions
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About the Author
Mike Zaccardi, CFA, CMT, is a finance expert and writer specializing in investments, markets, personal finance, and retirement planning. He enjoys putting a narrative to complex financial data and concepts; analyzing stock market sectors, ETFs, economic data, and broad market conditions; and producing snackable content for various audiences.
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