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The Relevance of Earnings and Funds Flow from Operations in the Presence of Transitory Earnings

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  • Ronald Stunda
  • Eric Typpo

Abstract

Executive Summary. The real estate investment trust (REIT) industry relies heavily on a cash flow-based measure of performance called funds flow from operation (FFO). FFO is the most widely used measure of performance for REITs, unlike other industries where earnings are used as a benchmark. This paper examines the role that earnings transitivity has on the value-relevance of FFO relative to earnings. The findings indicate that as earnings become more transitive, FFO gains value-relevance, while earnings lose value-relevance. Additionally, both FFO and earnings provide incremental information in the presence of the other.

Suggested Citation

  • Ronald Stunda & Eric Typpo, 2004. "The Relevance of Earnings and Funds Flow from Operations in the Presence of Transitory Earnings," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 10(1), pages 37-45, January.
    • Handle: RePEc:taf:repmxx:v:10:y:2004:i:1:p:37-45
    DOI: 10.1080/10835547.2004.12089690
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