Earnings Before Interest, Tax, Depreciation, Amortization and Exploration (EBITDAX)

What it is:

A variation of EBITDA, EBITDAX is a measure used by natural resource exploration companies to reflect ongoing or core profitability. The acronym stands for earnings before interest, taxes, depreciation, amortization and exploration expense.

How it works/Example:

EBITDAX is used to measure the ongoing operating profitability by adding back non-cash expenses as well as the expenses the firm would incur for costs of exploration.

A company’s income statement is used to calculate EBITDAX.  It is not included as a line item, but can be easily derived by using the other line items that must be reported on an income statement.

The formula for EBITDAX is:

EBITDAX = EBIT + Depreciation + Amortization + Exploration Expense

Let's take a look at a hypothetical income statement for an oil and gas exploration company, Company XYZ:

To calculate EBITDAX, we find the line items for EBIT ($650,000), depreciation ($50,000), amortization ($20,000) and exploration expense ($80,000) and then use the formula above:

EBITDAX = 650,000 + 50,000 + 20,000 + 80,000 = 800,000

Why it Matters:

EBITDA provides an important gauge of a company's ability to repay a loan, as it is essentially the income a business has free for interest payments. EBITDAX goes a step further by adding back exploration expenses to give a measure of ongoing profitability to assist in financing further exploration efforts. Both measurements are non-GAAP (Generally Accepted Accounting Principles).

Critics of EBITDA and EBITDAX claim that because both measurements are non-GAAP, they give companies wiggle room to misrepresent financial health by inflating expenses. Critics also claim more traditional GAAP measurements of cash flow and operating income give a more accurate financial picture.

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