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

Authors

Stunda A. Ronald, Birmingham Southern College
Eric W. Typpo, University of the PacificFollow

Document Type

Article

Publication Title

Journal of Real Estate Portfolio Management

ISSN

1083-5547

Volume

10

Issue

1

DOI

10.1080/10835547.2004.12089690

First Page

37

Last Page

45

Publication Date

1-1-2004

Abstract

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.

Recommended Citation

Ronald, S. A., & Typpo, E. W. (2004). The Relevance of Earnings and Funds Flow from Operations in the Presence of Transitory Earnings. Journal of Real Estate Portfolio Management, 10(1), 37–45. DOI: 10.1080/10835547.2004.12089690
https://scholarlycommons.pacific.edu/esob-facarticles/275