Variations in EBITDA
We looked into EBITDA and its components to understand how it's calculated, but it does have its fair share of variations as well. Basis on your requirement, EBITDA is tweaked and used in its own way and we'll go through some of these variations in this article.
LTM EBITDA (Last Twelve Months EBITDA)
Last Twelve Months EBITDA, this metric generates the EBITDA value for the last twelve months instead of last year's calculation, which is usually used. This is helpful to understand the current operational performance of a firm rather than a particular year's.
EBIT (Earnings Before Interest and Taxes)
It is a metric to identify company's operating profit. It doesn't include any Interests and taxes in its calculations and formulates an amount before that. This way it becomes easier to compare and analyze companies with similar Tax environments.
EBIT = Net income + Interests + taxes
OR
EBIT = Revenue − COGS − Operating Expenses
COGS = Cost of Goods Sold
Using EBIT for firms with large debts and taxes could create a mirage for the investors that it's operating performance is quite profiting.
Let's take an example, below is Procter & Gamble Co.'s income statement from the year ending June 30, 2016 (all figures in millions of USD):
EBIT = NS − COGS − SG&A + NOI + II
EBIT = $65,299 − $32,909 − $18,949 + $325 + $182 = $13,948
Where:
NS = Net sales
SG&A = Selling, general, and administrative expenses
NOI = Non-operating income
II = Interest income
EBIAT (Earnings Before Interest After Taxes)
This is an operational performance metric which doesn't consider the financial structure of the firm but takes into account the taxes that are paid by the firm. The taxes are usually set by the government and is an uncontrollable factor. Thus, this metric is not as widely used as EBITDA. But, it can definitely be used to compare similar firms in the same industry and same tax environment.
EBIAT = EBIT * (1 - Tax Rate)
Consider the following Example:
EBIAT = $750,000 * (1 - ($100,000 / $700,000)) = $642,857
As far as financial analysis is concerned, EBIAT is monitored only because it represents the availability of cash to pay creditors in case of a liquidation situation. In case the company doesn’t have enough amortization or depreciation, EBIAT would be watched closely.
EBID (Earnings Before Interest and Depreciation)
Similar to EBITDA, this metric doesn't include any Interests and depreciation costs involved but is sure does take into account other components like taxes & amortization expenses. This is used to compare firms in similar industries
EBID = EBIT + Depreciation - Taxes
Consider the following example:
EBID = $680,000 + $50,000 - $100,000 = $630,000
EBIDA (Earnings Before Interest, Depreciation and Amortization)
Similar to EBIAT, EBIDA does take into consideration any taxes that a firm would pay. In addition, it also adds back any Depreciation and Amortization.
EBIDA = EBIT + Depreciation + Amortization - Taxes
Consider the following example:
EBIDA = $680,000 + $50,000 + $70,000 - $100,000 = $700,000
EBIDAX (Earnings Before Interest, Depreciation, Amortization and Exploration)
Used majorly for Oil & Gas companies, this metric excludes any exploration & production cost of the firms and make it more easier to compare. Exploration & production costs include drilling expenses, expenses to locate oil and so on. This also excludes any interest and depreciation that may incur but is not suitable for companies with different Tax environments.
EBIDAX = EBIDA + Exploration Expenses
Consider the following example:
EBIDAX = $480,000 + $50,000 + $70,000 - $100,000 + $200,000 = $700,000
EBITDAX (Earnings Before Interest, Tax, Depreciation, Amortization and Exploration)
Similar to EBIDAX, this metric does exactly the same and in addition also excludes any Taxes that incur to the firm, thus making it more preferred metric for firms with different tax environments. Even non-cash expenses, like deferred taxes and impairments are also added back in EBITDAX.
EBITDAX = EBIT + Depreciation + Amortization + Exploration Expenses
Both EBITDAX & EBIDAX are used when companies have recurring expenses and specially when the companies have failed projects - when they have multiple incidents when they couldn't find any oil - EBITDAX is used to dress up the losses and improve their profit appearance.
Consider the following example:
EBITDAX = $480,000 + $50,000 + $70,000 + $200,000 = $800,000
EBITDAR (Earnings Before Interest, Tax, Depreciation, Amortization and Restructuring/Rent Costs)
Commonly used to compare restaurants that have unique rent structures and costs that are non-recurring and variable. It is also used to compare firms that have undergone a restructuring.
EBITDAR = EBITDA + Restructuring/Rent Expenses
The analyst can understand the core operational performance using this metric which doesn't include any cost that are unrelated to operations.
Consider the following example:
EBITDAR = $480,000 + $50,000 + $70,000 + $100,000 + $200,000 = $900,000
EBITDARM (Earnings Before Interest, Tax, Depreciation, Amortization, Rent and Management Fees)
This metric used to compare and analyze firms that have huge Management costs associated with their operations. This makes sure that these costs get slashed off so that there could be an easy comparison between firms.
EBITDARM = EBITDAR + Management Expenses
Consider the following example:
EBITDARM = $390,000 + $50,000 + $70,000 + $ 100,000 + $200,000 + $90,000 = $900,000
I am sure there would be a lot more variations to this non-GAAP metric, but it is interesting to observe how one component either decreases the operating performance or increases it. It must definitely be some work for the analysts to identify which metric to use and how to portray to the investors in a way that's easy to understand and comprehend, for everyone.
If you do know any other variations do comment and let me know!