Funds From Operations (FFO) for REITs focuses on recurring operating performance by adjusting GAAP net income for items that distort true cash generation. Depreciation is a non-cash charge that lowers net income but does not affect cash, so FFO adds it back. Gains on the sale of properties come from transactions rather than ongoing operations, so FFO subtracts those gains to avoid inflating earnings from one-time events. This combination shows a clearer picture of how the REIT’s core real estate operations are actually performing, though FFO is not the same as cash flow from operations or net income.

EBITDA shows earnings before interest, taxes, depreciation, and amortization, so it removes non-cash charges to focus on cash earnings from operations. Depreciation is excluded because it’s a non-cash expense used for allocating asset costs over time; EBITDA adds back depreciation to EBIT to reflect cash profitability. Revenue, operating expenses, and even sales discounts all figure into the earnings measure that EBITDA starts from, with depreciation and amortization the only adjustments made back.

In valuation, some methods tend to produce higher estimates because they embed premiums and strategic value seen in actual deals, while others reflect market pricing or intrinsic cash-flow assumptions. Precedent transactions pull prices paid in real deals for similar companies, which include control premiums and potential synergies. That makes these values typically the highest. The DCF approach builds value from a company's own projected cash flows discounted to present value; it is powerful and disciplined, but it hinges on the assumptions used (growth, margins, discount rate), so it sits below the premium-rich transaction valuations. Market comps rely on multiples from publicly traded peers; they reflect current investor sentiment and liquidity but exclude any control premium, so these valuations are usually lower than precedent deals and often higher than plain market pricing depending on conditions. Market valuation, the current market price for the company, captures what the market is willing to pay right now and generally represents the lowest end of this spectrum because it doesn’t include the uplift from a completed acquisition or the company-specific strategic value assumed in other methods.

Leveraged Buyout analysis is what PE firms use to figure out how much they could justify paying for a target and to anchor a floor on valuation by tying price to financing constraints and required returns. In an LBO model, you forecast the target’s cash flows, build a highly leveraged capital structure (debt and equity), and model an exit scenario. By setting a target equity return (and often an exit multiple), you determine the highest enterprise value that still allows debt to be serviced and the sponsor to achieve the minimum return. That implied price ceiling effectively sets the practical floor for what the firm would consider paying today—the deal must be financed cleanly and meet return hurdles, or it isn’t attractive. Other methods aren’t designed to capture how much leverage and return targets constrain purchase price: liquidation valuation focuses on asset-at-sale recoveries, replacement value on asset replacement costs, and futures based on public stock prices apply to public companies rather than private, highly levered deals.