Funds From Operations
The Funds From Operations (FFO) (German: operating result ) are a business key figure that is used in the real estate industry (especially by REITs ) and provides information on the profitability of the company.
calculation
The FFO is calculated from the annual surplus ( EAT , Net Income) as follows:
- EAT (annual surplus)
- + Depreciation
- - Write-ups from valuations and financial derivatives
- + costs that do not affect liquidity
- - Gains from sales proceeds
- = FFO (result from ordinary business activities)
The exact calculation basis used is shown by the company in the annual report .
application
The annual surplus is reduced by the mandatory depreciation according to the United States Generally Accepted Accounting Principles (GAAP) . However, the implementation of the legal obligation of REITs to pay out 90 percent of their revenues as dividends should not be influenced, so depreciation must be compensated. One-off profits from sales proceeds are to be deducted in order not to falsify the calculation basis. In some cases, the FFO is also adjusted for rent increases and certain capital costs (= Adjusted Funds from Operations (AFFO)) in order to increase comparability between the periods and e.g. B. to be able to better assess the rental success.
The FFO is often used as a key figure to compare the performance over time, by calculating the FFO to the amount per share.
Although the key figure for REITs has established itself as a benchmark, it is B. Changes in the posting can be easily manipulated.
Web links
- Funds From Operations (FFO) in the ARD stock exchange dictionary