FFO (Funds From Operations)
Corporate Credit Analysis glossary · Financial Statement Analysis & Cash Flow Dynamics
Definition
EBITDA less cash interest and cash taxes. The 'CFO before working-capital changes' metric used extensively by S&P methodology; FFO/Debt is a primary leverage ratio in agency frameworks.
FFO (Funds From Operations) in plain English
When a company sells stuff, some of its reported 'profit' isn't real cash yet, so investors want to know how much actual cash the core business throws off each year. FFO answers that: start with the company's rough operating earnings (EBITDA), then subtract the two things it truly must pay in cash, which are the interest on its loans and its taxes. Think of your part-time job: FFO is your paycheck after bus fare (interest) and the slice the government takes (taxes) are gone, the cash actually landing in your pocket. Rating agencies like S&P love the ratio FFO-to-Debt because it roughly shows how many years of that cash it would take to clear the debt, and a smaller debt pile relative to cash means a safer borrower.
Also called: Funds From Operations
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