Funds From Operations (FFO)
Definition of 'Funds From Operations (FFO)'
FFO is an important metric for investors to consider when evaluating REITs because it provides a more accurate picture of a REIT's financial health than net income. Net income can be misleading because it includes non-cash expenses that do not reflect the REIT's actual cash flow. FFO, on the other hand, provides a more accurate picture of the REIT's ability to generate cash flow from its operations.
There are a few things to keep in mind when evaluating FFO. First, it is important to understand that FFO is not a measure of cash flow from investing or financing activities. FFO only measures cash flow from operations. Second, FFO is not a standardized measure. Each REIT may calculate FFO in a slightly different way. Therefore, it is important to compare FFO between REITs on a consistent basis.
FFO is a valuable metric for investors to use when evaluating REITs. However, it is important to understand its limitations and to compare FFO between REITs on a consistent basis.
In addition to FFO, there are a few other metrics that investors may want to consider when evaluating REITs. These include net income, cash flow from operations, and debt-to-equity ratio. Net income is a measure of a REIT's overall profitability. Cash flow from operations is a measure of a REIT's ability to generate cash flow from its operations. Debt-to-equity ratio is a measure of a REIT's financial leverage.
By considering a variety of metrics, investors can get a more complete picture of a REIT's financial health and its ability to generate cash flow.
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