FFO Calculator

With this FFO calculator, you can easily calculate the funds from the operation of a company. The fund from operation (FFO) is a metric that will help you analyze the performance of a real estate investment trust (REIT).

This article will help you understand what FFO is and how to calculate the metric using the FFO formula. We will also show you its application by demonstrating some examples.

Funds from operation, also known as the FFO, is probably one of the most popular metrics used to analyze REITs (real estate investment trusts). When analyzing the REITS, FFO is seen as an improvement on the operating cash flow. This is because, as per the FFO definition, the metric excludes any one-time cash inflows, such as the gains and losses from property sales.

Besides, the FFO also strips away interest income as it is considered earnings from financial activities. Hence, the funds from operation are always used to analyze the REIT's ability to pay out dividends. The higher the FFO, the more secure the dividend payment from the REIT is. Our dividend calculator can help you understand how dividends work.

Now that you understand the FFO definition, we can talk about the funds from operations calculation.

To understand the funds from operation formula, let's take REIT Alpha with the following information as an example:

• Net income: $500,000;
• Depreciation and amortization: $150,000;
• Gains from property sales: $125,000;
• Losses from property sales: $80,000; and
• Interest income: $75,000.

There are five steps the FFO calculator follows:

1. Determine the net income

   The net income can be found on the bottom line of the company's income statement. The net income for REIT Alpha is $500,000.

2. Determine the depreciation and amortization

   The depreciation and amortization, or D&A, is the depreciated value of the company assets. You can find it in the income statement too.

   The REIT Alpha's D&A is $150,000.

3. Determine the gains and loss from property sales

   The gains and losses from property sales are any money earned or lost while selling properties, respectively.

   The gains and losses for REIT Alpha are $125,000 and $80,000, respectively.

4. Determine the interest income

   The next step is to determine the interest income, which for REIT Alpha is $75,000.

5. Calculate the funds from operation (FFO)

   The last step is to calculate the FFO using the FFO formula below:

   FFO = net income + D&A + losses - gains - interest income

   Hence, the REIT Alpha's FFO is $500,000 + $150,000 + $80,000 - $125,000 - $75,000 = $530,000.

After understanding what FFO is and how to calculate funds from operations, it is time for us to talk about the true meaning of FFO - why is this metric so suitable for analyzing REITs?

• The funds from operations formula was invented to analyze REITs because conventional accounting methods are not suitable for REITs. This is due to the fact that most accounting methods require companies to depreciate their property. However, for REITs, most of their properties actually increase in value over time. You can use our depreciation calculator to calculate the depreciation.

• Moreover, the FFO always strips away any gains or losses from property sales as these earnings are considered non-recurring. With these two features, FFO can create a more accurate picture than other metrics when it comes to analyzing REITs.