# The Pro Forma & Return Metrics
A **pro forma** is the financial model projecting whether a deal makes money. For income property it estimates revenue, expenses, and value.
## Building blocks
- **NOI (Net Operating Income)** = rental income − operating expenses (before debt).
- **Cap rate** — NOI ÷ value. Used to estimate value: **Value = NOI ÷ cap rate**.
- **Development cost** — from your Sources & Uses.
## Key return metrics
- **Yield on cost (development yield)** = stabilized NOI ÷ total cost. Compare it to market cap rates — the spread is your **development profit**.
- **Profit / cost** — total value created vs. total cost.
- **IRR (Internal Rate of Return)** — the annualized return accounting for timing of cash flows.
- **Equity multiple** — total cash returned ÷ equity invested.
## The point
The pro forma answers one question: **is the value you'll create worth more than what it costs to create — by enough margin to justify the risk?** If the spread is thin, the deal doesn't pencil.
**Takeaway:** The deal only works if the value you create beats your cost by enough to justify the risk.
> *Educational content — not legal, engineering, or financial advice. Requirements vary by jurisdiction; always confirm with the local authority and your professional team.*
