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What is EBIDA
EBIDA (Earnings Before Interest, Depreciation and Amortization) is a measure of a company’s operating performance. It measures a company’s earnings that add interest expense, depreciation, and amortization to net income. However, it does not include tax expenses. This metric is not as well known or used as its counterpart, EBITDA (Earnings before interest, taxes, depreciation, and amortization).
- EBIDA (Earnings Before Interest, Depreciation and Amortization) is a profitability metric that adds interest and depreciation/amortization to net income.
- EBIDA is said to be more conservative than EBITDA because the former is always lower.
- The EBIDA measure eliminates the assumption that a company can use tax money to pay down debt.
- Analysts, on the other hand, rarely use EBIDA and instead prefer EBITDA or EBIT.
How to Calculate EBIDA (Earnings Before Interest, Depreciation, and Amortization)
EBIDA can be calculated in various ways; this includes the addition of interest, depreciation, and amortization to the net income. Also, EBIDA can be calculated by adding depreciation and amortization to Earnings Before Interest and Taxes (EBIT), then subtract taxes.
In most cases, the EBIDA metric is used to compare companies in the same industry. It excludes the direct effects of financing, which are taxes paid as a direct result of a company’s use of debt.
EBIDA is commonly used as a metric for companies that do not pay taxes. Many non-profits, such as non-profit hospitals, charitable organizations, and religious organizations, fall into this category. It can be used interchangeably with EBITDA in this case.
Earnings Before Interest, Depreciation, and Amortization (EBIDA) is calculated as follows:
Where EBIT means Earnings Before Interest and Taxes.
EBIDA can be easily calculated using the income statement of the company.
Simply put, EBIDA is calculated by adding depreciation and amortization expenses to EBIT. To calculate EBIDA, subtract taxes from EBITDA.
EBIDA (Earnings before interest, depreciation, and amortization) is a more conservative valuation measure than EBITDA (Earnings before interest, taxes, depreciation, and amortization) because it includes tax expense in the earnings figure. The EBIDA measure eliminates the assumption in EBITDA that the money paid in taxes could be used to pay down debt.
This assumption on debt payment is made because interest payments are tax-deductible, which may reduce the company’s tax expense, allowing it to service its debt more easily. EBIDA, on the other hand, does not assume that interest expense can reduce the tax expense and, as a result, does not add it back to net income.
Criticisms of EBIDA (Earnings Before Interest, Depreciation, and Amortization)
Companies and analysts rarely calculate EBIDA as a measure of earnings. Thus, it serves little purpose if EBIDA is not a standard measure to track, compare, analyze, and forecast. Instead, EBITDA is widely regarded as one of the most essential earnings metrics. Furthermore, EBIDA can be misleading because it will always be greater than net income and, in most cases, greater than EBIT.
Moreover, like other popular metrics (such as EBITDA and EBIT), EBIDA is not governed by Generally Accepted Accounting Principles (GAAP), so what is included is at the discretion of the company. In addition to the criticisms of EBIT and EBITDA, the EBIDA figure excludes other important data such as working capital changes and capital expenditures (CapEx).
Difference between EBIDA and EBITDA
Analysts use EBITDA as one of the most common operating measures, but EBIDA is far less common. The direct effects of financing decisions are included in EBIDA because the taxes a company pays directly result from its use of debt. This type of analysis is usually essential when comparing similar companies within a single industry.
When misused, EBIDA, like EBITDA, can be deceptive. For example, companies with low net income may use EBIDA to “window-dress” their profitability. As a result, EBIDA will almost always be greater than the net income reported.
When determining borrower eligibility, the Eligible Lender must require the Eligible Borrower to use an adjusted EBIDA methodology based on a method previously needed to be used to adjust EBIDA when extending credit to similarly situated borrowers on or before June 15, 2020.
The Borrower must certify that it meets all of the following financial eligibility requirements (the “Financial Eligibility Requirements”):
• Requirement for EBIDA Ratio. The Eligible Borrower must use the methodology provided by the Eligible Lender to calculate adjusted 2019 EBIDA and the proxy for endowment income.
• Requirement for Liquidity Despite the challenges described above, AHS is nearing the completion of a final budget for FY20-21 that could result in an EBIDA margin of 3%.