EBITDAREarnings Before Interest, Taxes, Depreciation, Amortization and Restructuring or Rental Costs

Denise Elizabeth P
Senior Financial Editor & Contributor
Last Updated: December 20, 2021
Date Published: December 20, 2021

What is EBITDAR

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization and Restructuring or Rental Costs.

It is another financial measure used to determine the financial performance of the company, and although the EBITDAR does not form part of the financial reports prepared by the management because it is non-GAAP, all the information that people need to compute the EBITDAR can be found in the Income Statement.

ebitdar

Formula for EBITDAR

To compute the EBITDAR, the profit before interest and taxes have to be computed first and then add the amount deducted for depreciation and amortization to get the EBITDA.

From the EBITDA, the restructuring or rental costs are added.

To show it as a formula:

EBITDAR = Net Income + Interest + Taxes + Depreciation + Amortization + Restructuring or Rental Costs

Or simply, the formula can be:

EBITDAR = EBITDA + Restructuring or Rental Costs (where EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization)

What Does EBITDAR Tell You?

EBITDAR is a financial metric especially used by companies that have just recently undergone a restructuring or have abnormal rent costs.

It is used to take out expenses that are not related to the current operations of the business such as the capital structure, its tax rate, non-cash items included in the operating expenses, and also the adds back the restructuring costs and rental costs in order for those who make the analysis determine the cash that is available before the cost of restructuring and rent are paid for.

Rental costs are removed from the computation because investors making comparisons of companies belonging to the same industry will not be able to make similar comparisons – rental costs for companies located in different cities will also be different.

An effective comparison would be to remove all the non-operating expenses, non-cash expenses and restructuring or rental costs.

Restructuring costs are also removed because it is a type of cost that is not always incurred by the business.

There are many analysts that use EBIT, EBITDA to know the financial health and performance of companies but the use of EBITDAR is specifically used for restaurants and casinos due to their unique rent costs and also for companies that were just recently restructured.

Example of How To Use EBITDAR

For example, an analyst wants to determine the EBITDAR of three companies in order to present it to an investor who is looking at retail companies to invest in.

The data presented by these three companies are the following:

Company ACompany BCompany C
Revenues$685,000.00$630,000.00$725,000.00
Cost of Goods Sold$137,000.00$126,000.00$145,000.00
Gross Profit$548,000.00$504,000.00$580,000.00
Operating Expenses
Depreciation$18,000.00$15,000.00$25,000.00
Selling & Administrative$12,000.00$9,500.00$19,000.00
Restructuring Cost$0.00$36,000.00$0.00
Total Operating Expenses$30,000.00$60,500.00$44,000.00
Operating Income$518,000.00$443,500.00$536,000.00
Interest Expense$17,000.00$20,500.00$19,750.00
Taxes$154,440.00$109,475.00$159,600.00
Net Income$346,560.00$313,525.00$356,650.00

Based on the information provided above, the EBITDAR of Company A, B & C are as follows assuming the formula EBITDAR = EBIT + Depreciation + Amortization + Restructuring or Rental Costs, is used.

Company A – $536,000 ($518,000 + $18,000 + $0)

Company B – $494,500 ($443,500 + $15,000 + $36,000)

Company C – $561,000 ($536,000 + $25,000 + $0)

The computation of EBITDAR is only for management use and does not form part of the external financial reports that are issued.

As such, the use of the information is only used to help decision makers evaluate the profitability of businesses.

The Difference Between EBITDAR and EBITDA

what is ebitdar

The only difference between EBITDA and EBITDAR is that restructuring or rental costs are only used for EBITDAR.

Although both are used as financial metrics to determine the financial health and performance of businesses, those who analyze its profitability based only on these data may not be able to get the most accurate picture.

Depreciation and amortization are non-cash items and are recognized as an expense over the course of its useful life even though they are highly likely to be paid upon purchase.

As a result, the cash flow of the company and the result of the EBITDAR may not necessarily coincide.

It is always helpful for investors to look at the overall picture when making decisions.

FundsNet requires Contributors, Writers and Authors to use Primary Sources to source and cite their work. These Sources include White Papers, Government Information & Data, Original Reporting and Interviews from Industry Experts. Reputable Publishers are also sourced and cited where appropriate. Learn more about the standards we follow in producing Accurate, Unbiased and Researched Content in our editorial policy.

  1. NYU Stern "Corporate Rating Methodology" Page 5. December 20, 2021

  2. NYU Stern "VALUATION: IT’S NOT THAT COMPLICATED!" Page 181 - 186. December 20, 2021