EBITDAR

What is EBITDAR?

EBITDAR stands for Earning Before Interests, Taxes, Depreciation, Amortization, and Rent or Restructuring Costs. EBITDAR is known to stand for a non-GAAP tool that is useful in measuring the overall Financial Performance of the company. While EBITDAR is not known to appear on the Income statement of the company, it is still calculated with the help of information that is obtained out of the income statement.

EBITDAR Formula

As per the EBITDAR definition, its formula is as following:

EBITDAR = EBITDA + Rental or Restructuring Costs

Here, EBITDA is known to stand for Earnings Before Interests, Taxes, Depreciation, and Amortization.

What is the Purpose of EBITDAR?

EBITDAR serves to be an important metric that is basically utilized for analyzing the overall financial health as well as the performance of organizations that have undergone restructuring within the past one year. EBITDAR also serves useful for organizations like casinos or restaurants having unique rental costs. The given metric is known to be alongside EBIT (Earnings Before Interests & Taxes) and EBITDA (Earnings Before Interests, Taxes, Depreciation, and Amortization).

When you make use of the EBITDAR metric for analysis, it helps in reducing the overall variability from the expense of one company to the other. This is done for focusing only on the overall costs that could be related to the operations. This turns out helpful when comparison has to be made for peer companies within the given Industry.

EBITDAR is not known to take into consideration the rent or restructuring. This is because the given metric helps in measuring the core operational performance of the organization. For instance, let us assume an investor who is comparing two restaurants –one located in an expensive city with higher rent and the other in some remote location with a noticeably lower rent. For comparing the two businesses in a proper manner, the investor is known to exclude factors like the cost of the rent, along with taxes, interests, amortization, and depreciation.

At the same time, the investor might also consider excluding the costs related to restructuring when the organization or unit might have undergone restructuring while incurring costs from the given project. The given expenses, that tend to be included in the income statement, are mostly observed as non-recurring. Therefore, these are excluded from the calculations of the EBITDAR for providing a better insight into the ongoing operations of the company.

Differences Between EBITDAR and EBITDA

The major difference between the two metrics is that EBITDA is known to exclude the rental or restructuring costs. Still, both the parameters are utilized for comparing the overall financial performance of the two agencies without giving into consideration factors like taxes and non-cash costs like amortization and depreciation. When a business tends to depreciate or amortize the given asset, it goes forward with writing off the cost of the assets on an annual Basis over several years.