Ratio Analysis • Why is it important to ensure that properties are similar before relying too heavily on ratio analysis?
Income Multipliers • Gross Income Multipliers • GIM = Market Value / Effective Gross Income • NIM = Market Value / Net Operating Income
Financial Ratios • Operating Ratio • Operating Ratio = OE / EGI • Break-Even Ratio • Break-Even = (OE + DS) / EGI • Debt-Coverage Ratio • DCR = NOI / DS
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
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?