Table of Contents
- What Is Earnings Before Interest, Depreciation and Amortization (EBIDA)?
- Key Takeaways
- Understanding Earnings Before Interest, Depreciation and Amortization (EBIDA)
- Important Note
- Formula and Calculation for EBIDA
- Special Considerations
- Fast Fact
- Criticism of EBIDA
- What Is the Difference Between EBIDA and EBITDA?
- What Is EBIDA Used for?
- What Is a Good EBIDA?
- The Bottom Line
What Is Earnings Before Interest, Depreciation and Amortization (EBIDA)?
Let me explain EBIDA directly to you: it's a way to measure a company's earnings by adding back interest expense, depreciation, and amortization to the net income figure, but it keeps tax expenses in the mix. You won't hear about it as often as EBITDA, which is its more popular counterpart that excludes taxes too.
Key Takeaways
EBIDA serves as an earnings metric where you add interest and depreciation/amortization back to net income. It's more conservative than EBITDA because it usually comes out lower. This metric doesn't assume that tax payments could instead go toward debt reduction. Analysts rarely use EBIDA, sticking to EBITDA or EBIT instead. You can find all the numbers for calculating it right on a company's income statement.
Understanding Earnings Before Interest, Depreciation and Amortization (EBIDA)
You can calculate EBIDA in a few ways, like adding interest, depreciation, and amortization straight to net income. Or, start with EBIT, add depreciation and amortization, then subtract taxes. I want you to note that this metric is typically for comparing companies in the same industry, and it doesn't factor in any tax reductions from interest expenses.
EBIDA often comes up for companies that don't pay taxes, such as nonprofits like hospitals or charities. In those cases, you can use it just like EBITDA.
Important Note
Remember, all the components for EBIDA are on the income statement— that's where you pull the data from.
Formula and Calculation for EBIDA
To get EBIDA, you add back specific costs to net income. Since every company reports net income, it's straightforward: add in depreciation, amortization, and interest expenses. The formula looks like this: EBIDA = Net Income + Depreciation + Amortization + Interest.
Take this example with a company that has $1,000,000 in revenue, $200,000 cost of goods sold, $150,000 selling and administrative expenses, $50,000 depreciation, $25,000 amortization, $100,000 interest, and $35,000 taxes. Net income comes to $440,000 after subtracting everything from revenue. Add back interest, depreciation, and amortization, and you get $515,000 for EBIDA. This lets you see how those expenses impact earnings.
Special Considerations
EBIDA is more conservative than EBITDA because it includes taxes in the earnings. It skips the idea that taxes saved from interest deductions could pay down debt. Since interest is tax-deductible, it might lower taxes and free up cash for debt, but EBIDA doesn't assume that—it leaves taxes in and doesn't add them back.
Fast Fact
EBIDA isn't regulated or required under GAAP, so you probably won't see it spelled out in financial statements.
Criticism of EBIDA
Companies and analysts hardly ever calculate EBIDA, so it doesn't serve much purpose for tracking or forecasting. EBITDA is the go-to metric instead. EBIDA will always be higher than net income and often higher than EBIT, which can be misleading. Like EBITDA and EBIT, it's not GAAP-regulated, so companies decide what to include. It also misses things like working capital changes and capital expenditures.
What Is the Difference Between EBIDA and EBITDA?
Both EBIDA and EBITDA measure profitability after certain expenses, but the key difference is taxes: EBIDA includes them, while EBITDA subtracts them. That makes EBIDA usually higher since it accounts for one fewer expense.
What Is EBIDA Used for?
You use EBIDA to assess a company's profitability without some non-cash expenses. Depreciation and amortization spread costs over time, not matching actual cash outflows, so EBIDA gives a clearer view of cash-generating ability.
What Is a Good EBIDA?
A positive EBIDA is essential for positive cash flow, but even then, since it adds back depreciation and amortization, a company could still lose money overall. Aim for an EBIDA that supports growth and matches competitors' figures.
The Bottom Line
EBIDA measures earnings including operating profit, depreciation, amortization, and interest. It helps you understand profitability after removing some non-cash accounting items. It's very similar to EBITDA, except EBITDA also factors in taxes.
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