Funds From Operations: Defined and Explained

What Is Funds From Operations?

By Matthew DiLallo – Updated Dec 2, 2025 at 2:53 AM

Key Points

FFO measures REITs' cash earnings, excluding non-recurring items, for true operating performance.
To calculate FFO, adjust net income by adding depreciation and losses, minus gains.
FFO provides a clearer picture of potential dividend payouts and REIT valuation comparison.

Funds from operations (FFO) is a metric used to measure a company's recurring operating earnings. It's most commonly used by real estate investment trusts (REITs) to give investors a more accurate picture of their operating performance. It excludes the impact of certain items affecting a company's net income for tax purposes to more accurately reflect the income produced from business activities during a certain period.

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Infographic demonstrating the formula for funds from operations (FFO) — Image source: The Motley Fool

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Here's a closer look at FFO, how to calculate it, FFO variations, and why investors need to understand this metric.

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Depreciation

Depreciation is a way to reduce the value of long-term assets held by a company and reduce taxation related to those assets.

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About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

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