Definition
Earnings Before Interest, Depreciation and Amortization (EBIDA) is a financial measure used to assess a company’s profitability. It is calculated by subtracting a company’s operating expenses, such as depreciation and amortization, from its operating income. EBIDA is a measure of a company’s core profitability, as it excludes non-operating expenses such as interest payments.
Importance
EBIDA is an important measure of a company’s profitability, as it provides a more accurate picture of a company’s core operations. By excluding non-operating expenses such as interest payments, EBIDA provides a more accurate measure of a company’s profitability than other measures such as net income. This is especially important for companies that have high levels of debt, as interest payments can significantly reduce a company’s net income.
Example
For example, let’s assume that Company A has an operating income of $100,000 and interest payments of $20,000. Company A’s EBIDA would be $80,000 ($100,000 – $20,000).
Table
Operating Income $100,000
Interest Payments -$20,000
EBIDA $80,000
Key Takeaways
- EBIDA is a measure of a company’s profitability, calculated by subtracting a company’s operating expenses from its operating income.
- EBIDA is an important measure of a company’s profitability, as it provides a more accurate picture of a company’s core operations.
- EBIDA excludes non-operating expenses such as interest payments, which can significantly reduce a company’s net income.
Conclusion
Earnings Before Interest, Depreciation and Amortization (EBIDA) is an important measure of a company’s profitability, as it provides a more accurate picture of a company’s core operations. By excluding non-operating expenses such as interest payments, EBIDA provides a more accurate measure of a company’s profitability than other measures such as net income. This is especially important for companies that have high levels of debt, as interest payments can significantly reduce a company’s net income.
