What Does Funds From Operations Mean?
Funds from operations (FFO) refer to the figure used by real estate asset trusts (REITs) to describe the cash flow from their operations. FFO is calculated by adding devaluation and amortization to earnings and then deducting any gains on sales. It is sometimes cited on a per-share basis. The FFO-per-share ratio should be used in lieu of earnings per portion (EPS) when evaluating REITs and other alike investment trusts. Understanding Funds from Operations (FFO) FFO is a measure of the cash made by a REIT; real estate corporations use FFO as an functioning performance standard. The National Association of Real Estate Investment Trusts (NAREIT) originally pioneered this figure, which is a non-GAAP quantity. The formula for FFO is: FFO = Net Revenue + Depreciation + Amortization – Profits on Sales of Property. FFO is not to be disordered with a REIT’s cash flow from processes, which is stated on the firm’s statement of cash flows and in its place events the net amount of cash and counterparts that flows into a firm from regular, continuing business activities. FFO should not be understood as a substitute to cash flow as a measure of liquidity.