Earnings before interest depreciation, amortization and interest (EBIDA) is the gauge of the company’s earnings which adds cost of interest, depreciation, and amortization back to the net income figure. However, it also includes taxes. This measure is not as well known or used as often as its counterpart–earnings before interest, taxes, depreciation and amortization (EBITDA).
Understanding Earnings Before Interest amortization and depreciation (EBIDA)
There are a variety of methods to determine EBIDA by adding depreciation, interest, and amortization to the net income. Another method to determine EBIDA involves adding amortization and depreciation to earnings before taxes and interest (EBIT) after which subtract the taxes.
The metric is typically employed to evaluate companies within the same field. It doesn’t include the direct consequences of financing, in which the tax payments a company makes directly result from the usage of credit.
EBIDA is typically used as a metric used by companies who do not pay tax. This includes many non-profits including non-profit hospitals or charities as well as religious groups. In this instance this case, it could be used in conjunction with EBITDA.
Special Takes into Account
Earnings before depreciation, interest and amortization (EBIDA) is believed to be a more prudent estimation measure over EBITDA since it incorporates tax expense within the earnings measurement. The EBIDA measure eliminates the notion that the cash earned through taxes could be used to repay debt, which is a premise that was which is a part of EBITDA.
This assumption of debt payment is based on the fact that these payments can be tax tax-deductible which could, in turn, lower the cost of tax for the company as it has more cash to repay its debt. however, does not base the assumption that tax cost can be reduced by an cost of interest and, as such doesn’t include it in net income.
Criticism of EBIDA
EBIDA as an indicator of earnings is not often used by analysts and companies. It is useless therefore in the event that isn’t a common measure used to monitor or analyze, compare and forecast. In contrast, EBITDA is widely accepted as one of the most important earnings indicators. Additionally, EBIDA can be deceptive because it’s always greater than net income and often more than EBIT too.
Like other metrics that are popular (such like EBITDA or EBIT), EBIDA isn’t controlled by Generally Accepted Accounting Principles (GAAP) Therefore the data used is entirely up to the discretion of the company. Alongside the criticism about EBIT and EBITDA as well, the EBIDA figure doesn’t contain other key information like working capital adjustments and capital expenses (CapEx).
