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Traditional Measures of Investment Worth

Explore the significance of ensuring property comparability in ratio analysis, delve into income multipliers and financial ratios, and assess traditional profitability measures for informed investment decisions.

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Traditional Measures of Investment Worth

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  1. Traditional Measures of Investment Worth

  2. Ratio Analysis • Why is it important to ensure that properties are similar before relying too heavily on ratio analysis?

  3. Income Multipliers • Gross Income Multipliers • GIM = Market Value / Effective Gross Income • NIM = Market Value / Net Operating Income

  4. Financial Ratios • Operating Ratio • Operating Ratio = OE / EGI • Break-Even Ratio • Break-Even = (OE + DS) / EGI • Debt-Coverage Ratio • DCR = NOI / DS

  5. Traditional Profitability Ratios • Overall Capitalization Rate • Cap Rate = NOI / Market Value • AKA the free-and-clear rate of return • Equity Dividend Rate • Equity Div. Rate = BTCF / Cash Investment • Cash-on-Cash Return • Cash-on-Cash = ATCF / Cash Investment

  6. Broker’s Rate of Return • A more optimistic way of looking at things. • = (ATCF + Equity Buildup) / Cash Investment • Payback Period • Payback = Cash Investment / Annual CF • Advantages and disadvantages?

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