Which financial measure is used in the formula Ro = NIR ÷ EGIM?

The formula Ro = NIR ÷ EGIM is used to determine the capitalization rate (Ro) based on the net income received from the property (NIR) and the effective gross income multiplier (EGIM). Effective Gross Income (EGI) represents the total income a property generates after accounting for vacancy losses and other adjustments.

When using this formula, it is essential to understand that the effective gross income directly relates to the income a property is expected to produce, and it serves as the denominator in calculating the rate of return. By dividing the net income received (NIR) by the effective gross income multiplier (EGIM), a clearer view of the property’s financial performance and return on investment can be established.

Operating expenses, net revenue, and market value are important metrics in property assessment and analysis, but they do not specifically function as the financial measure or component in this particular formula. Therefore, the correct identification of effective gross income highlights its key role in analyzing an investment's profitability.