Below are some of the most common terms related to Real Estate Investment Trusts (REITs) industry.
Beta
Beta, also known as the Beta Coefficient, is a measure of the volatility of a stock in comparison to the market as a whole. The Beta of the market is 1.0, and individual stocks are ranked in comparison to how much they deviate from the market (1.0). If a stock has a Beta above 1.0, it usually indicates that the stock is both volatile and tends to move up and down along with the market. If the stock has a Beta of 1.0, it means it moves with the market. If a stock has a Beta below 1.0, it usually indicates it’s either a stock with lower volatility than the market or a volatile stock whose price is not highly correlated with the movements of the market. Stocks with Low-Beta values are considered to be less risky, but also have a lower potential return. Stocks with a High-Beta value are considered to be riskier but are also considered to have a potentially higher return. The Beta value can vary amongst sectors and industries (e.g., Aerospace & Defense, Business Services, Finance, Household products, real estate sectors), due to the operational nature of these different businesses. So comparing the REIT’s Beta to other REITs in the same country and related asset sectors can be useful.
Price to Sales (P/S) Ratio
The Price to Sales ratio (P/S ratio) is also known as the PSR, Price-Sales Ratio, Sales Multiple, Revenue Multiple, and PS Ratio. The REITs Price to Sales ratios are updated with the REIT’s closing stock price for the trading day. The Price to Sales ratio is a valuation metric that compares the REIT’s stock price to its revenues. The P/S ratio indicates the dollar value placed on each dollar of a REIT’s revenues. It is calculated by dividing the REIT's market cap by the revenue in the most recent year; or by dividing the per-share stock price by the per-share revenue.
Price-to-Book (P/B) Ratio
The Price-to-Book (P/B) Ratio is the Stock Price per Share divided by the Book Value per Share. The Book Value per Share formula can be calculated by dividing the Total Book Value by the Number of Outstanding Shares. The Price-to-Book Ratio also known as the Price-to-Book Value (P/BV) compares the REIT’s stock price to its book value per share. The rank of the REITs on this page can fluctuate daily with the changes in Stock Price, Total Book Value and the Number of Outstanding shares. The P/B value is a financial ratio that shows investors how much the REIT’s shareholders are paying for the net assets of the REIT compared to the REITs market price. The Book Value is the REIT's total tangible assets minus its total liabilities. The Book Value informs the accounting value of the REIT held by shareholders. The P/B ratio can also give an idea of what would be left if the REIT went bankrupt. A company with a lower price-to-book value (especially below 1) can indicate that the stock price is undervalued compared to its book value and therefore potentially a good investment opportunity. Although it is important to consider additional financial indicators and metrics along with the P/B ratio (e.g., Current Ratio, P/E, PEG, Return on Equity (ROE), Earning reports and more) for analysis. This is because it is possible that the P/B ratio looks favorable due to other financial and operational issues with the company, or can be an indication of weak forward-looking investor confidence in the business. The Price-to-Book (P/B) Ratio can vary amongst sectors and industries (e.g., Aerospace & Defense, Business Services, Finance, Household products, real estate sectors, etc.), due to the operational nature of these different businesses. So comparing the REIT’s Price-to-Book (P/B) Ratio to other REITs in the same country and similar asset sectors (e.g., Hotels, Residential, Data Centers, Timber, etc.), can be useful.
Return on Equity (ROE) Ratio
The Return on Equity (ROE) ratio is also commonly known as Shareholders Equity, and as Return on Net Worth (RONW). The ROE ratio reveals the amount of net income returned in relation to the shareholder equity invested in the REIT. The Return on Equity shows how much profit a REIT generates with the money shareholders have invested. The formula is calculated as Income from Continuing Operations divided by the Total Common Equity. The ROE is a profitability ratio that measures how well the REIT turns the investments it receives into earning gains and growth. A higher ROE ratio indicates the REIT is more efficient in generating a profit from the capital it receives, compared to a REIT with a lower ROE ratio. The ROE ratio can vary amongst different industries and sectors so comparing it to other companies in the same sector can provide more accuracy in evaluating the REITs performance. Although the ROE ratio is an important metric, it is important to evaluate it along with other ratios, data, and analysis for the REIT and its industry. Since for example, a REIT with a higher ROE may be the result of the company having higher leverage (debt), which can put the company at financial risk.
Return on Assets (ROA) Ratio
The below table ranks the Return on Assets (ROA) Ratio for US Real Estate Investment Trusts (REITs). The ROA ratio is also known as the Return on Total Assets. The ROA ratio is a profitability indicator of how much operating earnings the REIT is generating relative to its total assets. The formula for calculating ROA is Income from Continuing Operations divided by Total Assets. The ROA gives visibility into the efficiency of the REIT to generate profits from its invested capital (assets). The higher the ratio, the more efficient the REIT is in generating earnings from its total assets. Now, some industries and sectors are more capital intensive than others which may be indicated by a lower ROA for the companies in the industry. Therefore, since the Return on Assets (ROA) ratio can vary amongst sectors and industries (e.g., Aerospace & Defense, Business Services, Finance, Household products, real estate sectors); it is useful to compare the REIT’s ROA ratio to other REITs in similar asset sectors (e.g., Hotels, Residential, Data Centers, Timber).
Price-Earnings Ratio (P/E)
The Price-Earnings ratio (P/E ratio) is also known as the PER, Price Multiple, Price-to-Earning Ratio, PE Ratio, and Earnings Multiple. The REITs Price-Earnings ratios are updated with the REIT’s closing stock price for the trading day. The Price-Earning ratio is a formula used to value the company, and informs how much the market is paying for each dollar worth of the REIT’s earning. If a company has posted losses the P/E will be negative.
Book Value per Share (BVPS)
The Book Value per Share (BVPS), which is also known as Net Asset Value per Share (NAVPS), is the amount of equity available to shareholders expressed on a per common share basis. The Book Value is also referred to as Owner’s Equity, Shareholders’ or Stockholders’ Equity. The Book Value is the REIT’s Assets minus its Liabilities and indicates how much the REIT is worth if liquidated and all the remaining assets were sold for cash. In other words, it informs how much money a holder of a common share would get if the REIT is dissolved. BVPS is calculated by dividing the Total Shareholders’ Equity by the Common Shares Outstanding.
Current Ratio
The Current Ratio is a measure of the REITs ability to pay its debts (short-term and long-term obligations). The formula for Current Ratio is Total Current Assets divided by Total Current Liabilities during the same comparison period. A Current Ratio above one informs that the REITs Total Current Assets are greater than its Total Current Liabilities. Therefore, the higher the current ratio is above one, the better chances that the REIT is in a position to pay its debt/obligations within the next 12 months. A current ratio below one informs that the REITs obligations are greater than its assets. Now, the Current Ratio does have its limitations, as do all ratios by themselves. One of the limitations of the Current Ratio is that it groups all the REIT's assets together (Cash and equivalents, Accounts receivable, Prepaid expenses, Short-term investments, marketable securities, Inventory, other liquid assets), so it is difficult to gauge how liquid the company is in the short term, or if the REIT is inefficient in managing its assets. The Current Ratio formula does not include investments that cannot be easily liquidated. The other thing to note is that the Current Ratio can vary amongst sectors and industries (e.g., Aerospace & Defense, Business Services, Finance, Household products), due to the operational nature of these different businesses.
Debt-to-Equity (D/E) Ratio
The Debt-to-Equity (D/E) Ratio is a financial liquidity ratio calculated by dividing a REIT’s Total Debt by the Total Shareholders’ Equity. This D/E ratio is also referred to as leverage, risk or gearing ratio since it gauges the amount of borrowed capital the REIT is taking in relation to the capital contributed by shareholders. If the company has a high debt-to-equity ratio, it usually means that it is aggressive in financing its growth with capital contributed by creditors, and can mean the company is riskier. The D/E ratio also gives visibility into how much of the shareholder´s equity can cover the REIT’s liabilities. The Debt-to-Equity ratio can vary in different industries or sectors; for example, low capital-intensive industries tend to have a lower D/E ratio compared to capital-intensive industries. This is because capital-intensive industries have to invest more in property, plants, and equipment to operate, therefore, comparing the ratio to companies in its same sector and industry help give context.
Earning Before Interest and Taxes, Depreciation, and Amortization (EBITDA) Margin
The Earning Before Interest and Taxes, Depreciation, and Amortization (EBITDA) Margin measures a REIT’s operating profitability as a percentage of its total revenues. The formula is calculated as the REIT’s EBITDA divided by its Total Revenues.
Free Cash Flow (FCF)
The Free Cash Flow (FCF) is a measure of the financial performance of a REIT calculated as Operating Cash Flow minus Capital Expenditures (CAPEX). In other words, FCF is the excess money a REIT can generate after it subtracts the expenses associated with the purchase of property, plant, equipment and other significant investments from its operating cash flow. The FCF allows investors to gauge the financial health of a REIT and how much cash the company has left over to reinvest or distribute to its shareholders.
Free Cash Flow per Share (FCFPS) Ratio
The Free Cash Flow per Share (FCFPS) ratio is also known as Free Cash Flow For the Firm (FCFF). The FCFPS is a financial performance indicator, which informs how much FCF (Operating Cash Flow minus Capital Expenditures) the REIT is generating per share. FCFPS is calculated by dividing the Free Cash Flow (FCF) by the Weighted Average Shares Outstanding (Diluted). A REIT with a higher free cash flow per share or with an increasing FCFPS may indicate that it is performing well and in a better financial position.
Gross Margin Ratio (GMR)
The Gross Margin Ratio (GMR) is also known as the Gross Profit Margin or the Gross Profit Percentage. GMR should not be confused with the Profit Margin Ratio, which is a different ratio entirely. The GMR is calculated by taking the company's Total Sales Revenue minus its Cost of Goods Sold, divided by the Total Sales Revenue, expressed as a percentage or ratio. The Gross Margin Ratio indicates the portion of each dollar of revenue the REIT retains as gross profit. The higher the GMR, the more efficient the REIT potential is. The benchmark for the Gross Margin Ratio also varies by industry and sector, so it's important to compare these values in context.
Profit Margin Ratio
The Profit Margin Ratio, also known as the Gross Profit Ratio, is a profitability ratio and is calculated by dividing the REIT´s Net Income by its Total Revenues. The Net Income which is also known as Net Profit or Net Earnings is determined by subtracting the REIT’s total expenses from its Total Revenues. The Profit Margin ratio gives visibility into how efficiently a REIT uses its income. The higher the Profit Margin ratio, the more profit the REIT generated in relationship to every dollar of revenue it brings in. In other words, this ratio provides insight into how efficiently a REIT can convert its Revenues into Net Profit. This ratio allows for the comparison of a REIT’s performance over different periods of time, and also to compare the performance of many REITs in the same industry and sector.
Earnings-Per-Share (EPS) Basic and EPS Diluted
The Earnings-Per-share (EPS) Basic ratio measures the REIT’s profit (or loss) that is in theory available for payment to the holders of common shares outstanding, during the reported reportperiod. ESP Basic is calculated by subtracting the preferred stock dividends from the net income, and dividing the remaining value by the weighted average number of common shares outstanding during the reportperiod. The Diluted EPS is the adjusted EPS ratio to include if all convertible securities were exercised (warrants, convertible preferred stock, securities connected with employer stock options, and other dilutive securities). The list includes the REIT's market cap (Large-Cap with market capitalization over $10 Billion, Mid-Cap with market capitalization between $2 Billion and $10 Billion, Small-Cap with market capitalization between $300 Million and $2 Billion, and Micro-Cap with market capitalization between $50 Million and $300 Million). The list also informs the Real Estate sector(s) the REIT owns or manages assets in such as Retail, Office, Residential, Hotel, Mortgage, and more.
Current Liquidity
Formula:
Current = Current assets / Current liabilities
Quick (acid-test)
Formula:
Quick (acid-test) = Current assets – inventory / Current liabilities
Cash Flow Liquidity
Formula:
Cash Flow Liquidity = Cash + marketable securities + cash flow from operating activities / Current liabilities
Average Collection Period
Formula:
Average Collection Period = Net accounts receivable / Average daily sales
Days Inventory Held
Formula:
Days Inventory Held = Inventory / Average daily cost of sales
Days Payable Outstanding
Formula:
Days Payable Outstanding = Accounts payable / Average daily cost of sales
Cash Conversion or Net Trade Cycle
Formula:
Cash Conversion or Net Trade Cycle = Average collection period + days inventory held – days payable outstanding
Accounts Receivable Turnover
Formula:
Accounts Receivable Turnover = Net sales / Net accounts receivables
Inventory Turnover
Formula:
Inventory Turnover = Cost of goods sold / Inventories
Fixed Asset Turnover
Formula:
Fixed Asset Turnover = Net sales / Net property, plant, and equipment
Total Asset Turnover
Formula:
Total Asset Turnover = Net sales / Total assets
Debt Ratio
Formula:
Debt Ratio = Total liabilities / Total assets
Long-term Debt to Total Capitalization
Formula:
Long-term debt to total capitalization = Long-term debt / Long-term debt + Stockholder’s Equity
Debt to Equity Ratio
Formula:
Debt to Equity = Total Liabilities / Stockholder’s Equity
Financial Leverage Index
Formula:
Financial Leverage Index = Return on equity / Adjusted return on assets
Times Interest Earned
Formula:
Times Interest Earned = Operating profit / Interest expense
Cash Interest Coverage
Formula:
Cash Interest Coverage = Cash flow from operating activities + interest paid + taxes paid / Interest paid
Fixed Charge Coverage
Formula:
Fixed Charge Coverage = Operating profit + lease payments / Interest expense + lease payments
Cash Flow Adequacy
Formula:
Cash Flow Adequacy = Cash flow from operating activities / Capital expenditures + debt repayments + dividends paid
Gross Profit Margin
Formula:
Gross Profit Margin = Gross profit / Net sales
Operating Profit Margin
Formula:
Operating Profit Margin = Operating Profit / Net sales
Effective Tax Rate
Formula:
Effective Tax Rate = Income taxes / Earnings before income taxes
Net Profit Margin
Formula:
Net Profit Margin = Net profit / Net sales
