What is earnings before interest, amortization, and amortization (EBIDA)?
Earnings before interest, depreciation, and amortization (EBIDA) is a measure of a company’s profits that adds interest expense, depreciation, and amortization to the net income figure. However, it includes tax charges. This measure is not as well known or used as often as its counterpart, namely earnings before interest, taxes, depreciation and amortization (EBITDA).
Key points to remember
- Earnings before interest, depreciation and amortization (EBIDA) is a measure of profit that adds interest and depreciation / amortization to net income.
- EBIDA is said to be more conservative than its EBITDA counterpart, as the former is usually always lower.
- The EBIDA measure removes the assumption that money paid in taxes could be used to repay debt.
- However, EBIDA is not often used by analysts, who opt instead for EBITDA or EBIT.
Understanding Earnings Before Interest, Depreciation, and Amortization (EBIDA)
There are different ways to calculate EBIDA, such as adding interest, depreciation, and amortization to net income. Another way to calculate EBIDA is to add depreciation and amortization to earnings before interest and taxes (EBIT), and then subtract taxes.
The metric is typically used to analyze companies in the same industry. It does not include the direct effects of financing, where the taxes a business pays are a direct result of its use of debt.
EBIDA can often be found as a measure for companies that do not pay taxes. This can include many nonprofits, such as nonprofit hospitals or charities and religious organizations. In this case, it can be used interchangeably with EBITDA.
Earnings before interest, depreciation and amortization (EBIDA) is considered a more conservative measurement measure than EBITDA because it includes the tax charge in the profit measurement. The EBIDA measure removes the assumption that money paid in taxes could be used to repay debt, an assumption made in EBITDA.
This debt payment assumption is made because the interest payments are tax deductible, which, in turn, can reduce the tax burden on the business, giving it more money for the service of its debt. EBIDA, however, does not assume that the tax burden can be reduced through interest expense and therefore does not add it back to net income.
Review of EBIDA
EBIDA as a measure of earnings is very rarely calculated by companies and analysts. It is therefore of no use if EBIDA is not a standard measure for monitoring, comparing, analyzing and forecasting. Instead, EBITDA is widely accepted as one of the primary measures of earnings. In addition, EBIDA can be misleading as it will always be greater than net profit and in most cases also greater than EBIT.
And like other popular metrics (such as EBITDA and EBIT), EBIDA is not regulated by generally accepted accounting principles (GAAP). Therefore, what is included is at the discretion of the company. Besides the critique of EBIT and EBITDA, the EBIDA figure does not include other key information, such as changes in working capital and capital expenditure (CapEx).