Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs - EBITDAR

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What is 'Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs - EBITDAR'

Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) is a non-GAAP indicator of a company's financial performance. Although EBITDAR does not appear on a company's balance sheet, it can be easily calculated using information from the balance sheet. The formula for calculating EBITDAR is earnings before interest and tax (EBIT) plus depreciation, amortization and restructuring or rent costs.

BREAKING DOWN 'Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs - EBITDAR'

Another way of determining EBITDAR is revenue minus expenses plus interest, taxes, depreciation, amortization, and restructure or rent costs. Depending on the company and the goal of the analyst, the indicator can either include restructuring costs or rent costs, but usually not both. EBITDAR is a metric primarily used to analyze the performance of companies that have gone through restructuring or companies such as restaurants or casinos which have unique rent costs. It exists alongside EBIT and earnings before interest, tax, depreciation and amortization (EBITDA).

Difference Between EBIT and EBITDAR

EBIT appears on a company's balance sheet, and it consists of the company's revenue minus its expenses. However, interest and tax are not included in the expenses. For example, imagine a company earns $1 million in a year, and it has $400,000 in expenses including operating expenses, depreciation costs and related expenses. It pays $20,000 in interest and another $100,000 in taxes. Its net income for the year is $480,000. However, its EBIT is $600,000. This is net income plus interest and taxes.

Difference Between EBITDA and EBITDAR

Simply, the difference between EBITDA and EBITDAR is that the latter takes restructuring or rent costs into account. However, both of these metrics are used to compare the financial performance of two companies without taking their tax bracket into account or expenses the business incurred during previous years. For example, when a business amortizes or depreciates an asset, it writes off a portion of the asset's cost each year over several years. While important for tax returns and accounting ledgers, these numbers can cloud a picture of a business's current financial state, and as a result, investors may want to consider the performance of a business without taking these expenses into account. Instead, the investor may prefer to only look at the business's current expenses.

EBITDAR doesn't take rent or restructuring into account because this metric seeks to measure a company's operational performance. For example, imagine an investor was comparing two restaurants, one in New York City with very expensive rent costs and the other in Omaha with significantly lower rent costs. In order to compare those two businesses effectively, the investor excludes their rent costs, as well as interest, tax, depreciation and amortization.

Similarly, restructuring is excluded from this number when a company has gone through a restructuring plan and has incurred costs from the plan. These costs, which are included on the income statement, are usually seen as nonrecurring and are excluded from EBITDAR to give a better idea of the company's ongoing operations.