Why doesn't Adjusted Funds From Operations include changes in working capital?
To my understanding, AFFO is the equivalent of free cash flow for REITs. Why does it not also adjust FFO for increase in working capital?
[{"id": "it0zysu", "text": "I don\u2019t think AFFO or FFO is meant to be equivalent to free cash flow or funds for distribution, only a measure of operating performance. What you are looking for would just be a standard cash flow statement I think.", "replies": [{"id": "it10zg1", "text": "But isn\u2019t AFFO used instead of free cash flow for a REIT DCF?\n\nhttps://einvestingforbeginners.com/affo-reits-free-cash-flow-fcf/?doing_wp_cron=1665776875.4163210391998291015625", "replies": [{"id": "it14eql", "text": "I skimmed through, but it seems like there are several references to where they compare FFO and AFFO in that it\u2019s \u201clike\u201d or \u201csimilar\u201d to free cash flow for analysis purposes, but at the end of the day each metric has its own nuances and purpose. \n\nThe example they use does demonstrate using AFFO for a dcf, and I\u2019ll admit I\u2019m probably out of my wheelhouse at this point. If you feel like your AFFO accurately reflects your cash flow, then you are probably ok using it as part of your dcf calcs.", "replies": [{"id": "it16hkk", "text": "They're obviously different metrics, I just want to know why AFFO is used instead of FCF in a DCF if it doesn't include changes in working capital", "replies": [{"id": "it25x0w", "text": "AFFO is generally not recorded based on a cash basis. If you included increases in working capital (current assets - current liabilities) you would be mixing two different things and could be double counting. \n\nFor example - if AFFO you are counting rent revenue yes? If so, then if you add in \u201cincreases to working capital\u201d, then you are also counting the increase in cash you receive, thus inflating AFFO. \n\nKeep in mind that revenue is not technically the same as cash from an accrual accounting perspective.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]