EBITDAR

What is EBITDAR?

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent (or Restructuring) costs.

It is a financial metric used to measure a company's operating performance by excluding both non-operating expenses and rent or restructuring costs, which can vary widely across industries or lease agreements.

Formula

EBITDAR = Net Income + Interest + Taxes + Depreciation + Amortization + Rent or Restructuring Costs

Why Use EBITDAR?

EBITDAR is useful when comparing companies that:

• Operate in industries with heavy lease expenses (like airlines, hotels, and retail).
• Have one-time restructuring charges due to mergers, downsizing, etc.
• Need a measure of core operational profitability without being distorted by financing decisions, tax strategies, or lease structures.

When is EBITDAR Most Relevant?

EBITDAR is particularly helpful in:

• Comparing franchise-based businesses, where one owns property and another rents.
• Distressed businesses undergoing restructuring.
• M&A valuation, to remove inconsistencies caused by lease vs. own decisions.

Example

Let’s say a hotel chain has the following financials:

Net Income: ₹10 crore

Interest: ₹5 crore

Taxes: ₹2 crore

Depreciation: ₹4 crore

Amortization: ₹1 crore

Rent: ₹8 crore

EBITDAR = 10 + 5 + 2 + 4 + 1 + 8 = ₹30 crore

Limitations of EBITDAR

• Not a GAAP/IFRS standard: It’s a non-standard metric and may be calculated differently by different companies.
• Can be misleading if used in isolation, as it removes real cash outflows like rent.
• Not suitable for all industries, especially those without significant lease or restructuring costs.

EBITDAR vs. EBITDA

Metric	Includes Rent?	Use Case
EBITDA	❌ Rent is included in operating expenses	General profitability measure
EBITDAR	✅ Rent is added back	Used when rent varies significantly across companies or is temporarily inflated (e.g., due to COVID-19)

So, EBITDAR provides a more "normalized" view of profitability in businesses where rent is a major cost driver.