DEFINITION of Earnings Before Interest, Depreciation, Amortization and Exploration - EBIDAX

Earnings before interest, depreciation, amortization and exploration (EBIDAX) is a financial metric used to exclude certain accounting and structural issues associated with exploration & production (E&P) companies in the oil and gas industry, and make their financial performance more comparable.

BREAKING DOWN Earnings Before Interest, Depreciation, Amortization and Exploration - EBIDAX

Earnings before interest, depreciation, amortization and exploration (EBIDAX), like EBITDA, is an earnings metric which allows investors and other stakeholders to get a better idea of a company’s financial performance and profitability, without obscuring the effects of different accounting methods, differences in leverage, and – in the case of oil and gas companies — highly variable exploration costs. Excluding exploration costs makes it easier to compare firms who may use different accounting methods to account for them or operate in very different parts of the world.

EBIDAX may be unsuitable for companies with lots of debt, or those that must frequently upgrade costly equipment, or when comparing firms with very different tax rates. That is why analysts generally use the EBITDAX metric, which also strips out taxes.

A word of warning, though. Companies that are bad at exploration might be tempted to use EBIDAX to window dress their profitability. Because the company can decide what is included in the calculation, investors should cross-check these numbers with capital expenditures, changes in working capital requirements, debt payments and exploration expenses.

For more on this subject, read Oil & Gas Sector: Credit and Valuation Ratios.