A:

EBITDA, EBITDAR and EBITDARM are analytic indicators commonly used by management to evaluate the financial performance and resource allocation for operating units within a company. These tools are often used within the healthcare industry and also serve as measures of leverage capacity and debt serviceability.

EBITDA, or earnings before interest, taxes, depreciation and amortization, is a commonly used measure of profitability. It is calculated by taking operating income and adding back depreciation and/or amortization. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become widely used in many industries for companies that wish to disclose more favorable numbers to the public.

EBITDAR, or earnings before interest, taxes, depreciation, amortization and rent/restructuring costs, is the same calculation as EBITDA, with the exception that rents and/or restructuring costs are excluded from the expenses. EBITDAR is an especially useful tool for companies undertaking restructuring efforts.

EBITDARM, or earnings before interest, taxes, depreciation, amortization, rent and management fees, is often used by credit rating agencies to assist with comparisons of similar, high debt-carrying companies in order to determine credit ratings. Real estate investment trusts (REITs) and hospitals often lease the spaces they use, meaning rent fees can become a major operating cost.

While EBITDA, EBITDAR and EBITDARM can be useful measures for internal purposes and helpful in conducting multi-company comparisons, they should not be considered measures of financial performance under generally accepted accounting principles (GAAP).

For more on this topic, read EBITDA: Challenging the Calculation and A Clear Look at EBITDA.

This question was answered by Steven Merkel.

RELATED FAQS
  1. What are the risks of relying on EBITDA margin data when making an investment?

    Understand the risks of relying on EBITDA margin data when making an investment decision in a company. Learn what the EBITDA ... Read Answer >>
  2. Why is the EBITDA margin considered to be a good indicator of a company's financial ...

    Understand why the EBITDA margin is a good indicator of a company's financial health. Learn why it also has some drawbacks ... Read Answer >>
  3. What is the formula for calculating EBITDA?

    Learn about EBITDA and how companies can manipulate this calculation to look more profitable. Read Answer >>
  4. What is the difference between operating margin and EBITDA

    Understand the key differences between, and purposes of, two measures of profitability that companies use: operating profit ... Read Answer >>
  5. What exactly does EBITDA margin tell investors about a company?

    Discover what investors can learn from the EBITDA margin. How does it compare to other profitability ratios and what are ... Read Answer >>
  6. What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating ... Read Answer >>
Related Articles
  1. Investing

    What is EBITDAR?

    EBITDAR reveals a company’s financial performance and its operating cash flow.
  2. Investing

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  3. Investing

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  4. Investing

    Should You Ignore EBITDA?

    EBITDA may get a bad rap in the financial world, but it can actually help investors create an apples-to-apples comparison.
  5. Investing

    Free Cash Flow vs EBITDA: Which Should You Analyze?

    FCF and EBITDA are two ways of looking at the earnings of a business. EBITDA might be better for comparison purposes, while FCF is good for valuation.
  6. Investing

    Explaining the EBITDA Margin

    EBITDA margin can provide an investor with a cleaner view of a company's core profitability.
  7. Investing

    EBITDA

    Otherwise known as Earnings Before Interest, Taxes, Depreciation and Amortization. Learn more about this indicator of a company's financial performance.
  8. Trading

    How To Value Airline Stocks

    We explain what drives the stocks of airline companies and how best to assess their values.
  9. Investing

    Turning Dimes Into Dollars

    We examine five stocks from apparel stores and specialty retail industries, looking for the most efficent companies at turning capital expenditures into profits.
RELATED TERMS
  1. EBITDARM

    A financial performance measure that stands for earnings before ...
  2. Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or ...

    A non-GAAP indicator of a company's financial performance calculated ...
  3. Adjusted EBITDA

    Adjusted EBITDA is a measure computed for a company that looks ...
  4. EBITDA Margin

    A measurement of a company's operating profitability. It is equal ...
  5. EBITDA to sales ratio

    A financial metric used to assess a company's profitability by ...
  6. Net Debt To EBITDA Ratio

    A measurement of leverage, calculated as a company's interest-bearing ...
Hot Definitions
  1. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  2. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  4. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
Trading Center