1) Core Profitability Measures
- EBITDA — operating cash-flow proxy before capital structure and taxes.
Formula (text):EBITDA = Net income + Interest + Taxes + Depreciation + Amortization - EBIT — operating income before interest and taxes.
Formula:EBIT = Net income + Interest + Taxes - EBT — earnings before taxes, useful when tax rates differ across firms.
Formula:EBT = Net income + Taxes - Net Income — residual profit to equity holders.
Formula:Net income = Revenue − Total expenses - NOI (Net Operating Income) — property-level profitability (ex-debt, ex-capex).
Formula:NOI = Gross rental income − Operating expenses
Tip: use EBITDA/EBIT to compare operations across capital structures; use NOI for property or REIT analysis.
2) Return & Leverage Ratios
- ROI — percent return on a specific investment.
Formula:ROI = (Gain from investment − Cost) / Cost - ROE — profitability to common equity holders.
Formula:ROE = Net income / Shareholders' equity - Debt Ratio — share of assets financed by debt.
Formula:Debt ratio = Total liabilities / Total assets - Debt-to-Equity — capital structure and financial risk.
Formula:D/E = Total liabilities / Shareholders' equity
Interpretation: higher leverage can amplify ROE but increases distress risk; track alongside interest coverage and liquidity.
3) Real Estate / REIT Metrics
- FFO (Funds From Operations) — adjusts net income for non-cash items (e.g., depreciation) and gains on sales to better reflect REIT cash generation.
Formula (text):FFO = Net income + Depreciation + Amortization − Gains on sale - NAV (Net Asset Value) — total assets minus liabilities.
Formula:NAV = Total assets − Total liabilities - NAV per Share — per-share NAV.
Formula:NAV per share = NAV / Total outstanding shares - Share Price / NAV — premium/discount to underlying value.
Formula:Price-to-NAV = Market price per share / NAV per share
Use Price-to-NAV to spot discounts or premiums vs. estimated private-market values.
4) Quick Practice Prompts
- Compute EBITDA and EBIT from a simple income statement; reconcile to Net Income.
- Given balance-sheet totals, calculate Debt ratio and D/E; discuss implications for ROE sensitivity.
- For a REIT, bridge Net Income to FFO and compute Price-to-NAV from provided estimates.