Net operating income and operating cash flow of various indicators used in assessing the financial viability of the investment or company.
Net Operating Income
Net operating income is a profitability metric is commonly used in real estate to measure properties of the potential profit. Net operating income or Noi measures the amount of cash flows that the property generates after all expenses have been deducted or has been paid.
Investors use NOAH to determine whether the property is a good investment, while lenders use NOAH to determine whether the property is a good credit risk. Net operating income includes rental income and any other sources of income, including Parking fees, such as vending and Laundry machines.
When calculating Noi, operating expenses are deducted from the total income of the hotel. These costs may include the cost of operation and maintenance of the building and the surrounding area, such as insurance, fees for property management, legal services, utilities, property taxes, repairs, cleaning and fees.
The calculation of net operating income can also be attributed to operating income, when it comes to determine the financial condition of the company before investing in it.
Operating profit is the profit of the company after operating expenses are deducted from gross income. Operating profit shows the amount of profit a company receives from its activities without interest and tax expenses. Operating income is calculated from gross income and subtracting operating expenses, which include selling, General and administrative expenses (administrative) depreciation and amortization.
As operating income excluding taxes and interest expenses, it is often called operating profit or earnings before interest and taxes. However, there are cases where operating profit may differ from profit.
Operating Cash Flow
Operating cash flow measures the cash a company receives from its daily core business or operations. Operating cash flow also known as cash flow from operations and is the statement of cash flows.
Operating cash flow is calculated by subtracting operating expenses from total revenue. In short, it measures how much cash flow is generated from the core business of the company by eliminating any other sources of income, like investment income, for example. Cash flow from operating activities is important because it shows how successful the company’s main business is performing.
Investing and financing activities are excluded from operating cash flows and are accounted for separately, such as borrowing, purchase of capital equipment, and increase dividend payments.
For more on cash flows, please read what is the formula to calculate free cash flow?