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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Earnings Before Interest, Depreciation and Amortization (EBIDA)

What it is:

Earnings before Interest, Depreciation, and Amortization (EBIDA) are a post-tax measure of a company's operating performance.

How it works (Example):

The formula for EBIDA is:

EBIDA = EBIT + Depreciation + Amortization - Taxes

EBIDA can easily be derived using the company's income statement.

Let's take a look at a hypothetical income statement for Company XYZ:

Adding depreciation and amortization expenses to EBIT will result in the EBITDA. Taxes are then subtracted from EBITDA to find EBIDA.

Using the formula above, Company XYZ's EBIDA is:

EBIDA = $750,000 + $50,000 + 0 - $100,000 = $700,000

Why it Matters:

EBITDA is one of the operating measures most used by analysts, but EBIDA is far less popular. EBIDA does include the direct effects of financing decisions in that the taxes a company pays is a direct consequence of its use of debt. Such analysis is particularly important when comparing similar companies across a single industry.

EBIDA, like EBITDA, can also be deceptive when applied incorrectly. EBIDA can be trumpeted by companies with low net income in an effort to "window-dress" their profitability. EBIDA will almost always be higher than reported net income.

Also, because EBIDA isn't regulated by GAAP, investors are at the discretion of the company to decide what is, and is not, included in the calculation from one period to the next. Therefore, when analyzing a firm's EBIDA, it is best to do so in conjunction with other factors such as capital expenditures, changes in working capital requirements, debt payments, and, of course, exceptional items.

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