EBITDAR: Meaning, Formula, Example, Pros & Cons

What is EBITDAR?

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent costs. It is a non-GAAP profitability metric used to isolate a company’s core operating performance by excluding financing, tax, non-cash, and certain one‑time or location-dependent costs. Companies commonly using EBITDAR include restaurants, casinos, and firms that have recently undergone restructuring or that pay significant rent.

Key points
* EBITDAR focuses on operating profitability by removing interest, taxes, depreciation, amortization, and either restructuring or rent expenses.
* It is primarily an internal analysis tool; public companies are not required to report EBITDAR.
* Useful for comparing operational performance across peers with different capital structures, tax situations, or property ownership.

Formula and calculation

Common formulations:
* EBITDAR = EBITDA + Restructuring or Rent costs
* Equivalently: EBITDAR = Net Income + Interest + Taxes + Depreciation + Amortization + Restructuring/Rent

Notes on components:
* Interest and taxes are removed because they relate to financing and jurisdictional tax rules, not core operations.
* Depreciation and amortization are non-cash accounting allocations for tangible and intangible assets.
* Restructuring costs are often excluded as one-time items; rent can be excluded to compare companies regardless of ownership vs. leasing.

Example

Assume Company XYZ:
* Revenue: $1,000,000
* Operating expenses: $400,000 (includes Depreciation $15,000, Amortization $10,000, Rent $50,000)
* Interest: $20,000
* Taxes: $10,000

Calculations:
1. Net income = $1,000,000 − $400,000 − $20,000 − $10,000 = $570,000
2. EBIT = Net income + Interest + Taxes = $570,000 + $20,000 + $10,000 = $600,000
3. EBITDA = EBIT + Depreciation + Amortization = $600,000 + $15,000 + $10,000 = $625,000
4. EBITDAR = EBITDA + Rent = $625,000 + $50,000 = $675,000

Advantages

• Excludes one-time restructuring costs to show recurring operating results.
• Facilitates comparisons across companies with different capital structures or geographic rent levels.
• Helps focus on expenses management can more directly influence, excluding some uncontrollable items.

Limitations

• May remove costs that are recurring or partly controllable (e.g., repeated restructurings), masking true operating discipline.
• Excluding rent and restructuring can understate actual cash needs and mislead about free cash flow.
• Geographic pricing and revenue differences may offset higher local costs, so removing rent can distort economic comparisons.
• Non-GAAP — not standardized; companies may calculate it differently.

EBITDAR vs. EBITDA, EBIT, and Net Income

• EBITDA excludes interest, taxes, depreciation, and amortization. EBITDAR further excludes rent or restructuring costs.
• EBIT excludes depreciation and amortization but includes rent and restructuring; it reflects accounting profit before financing and taxes.
• Net income is the bottom-line profit after all expenses; it includes every cost and follows accounting rules.
  Choice among these depends on the analytical focus: operational cash-generation (EBITDA/EBITDAR), accounting profit (EBIT), or final profitability (net income).

When to use EBITDAR

• Internal performance reviews after a recent restructuring.
• Comparing companies with different asset ownership (owned vs. leased properties).
• Industries with significant rent exposure (restaurants, hotels, casinos) where rent can distort operational comparability.

What is a good EBITDAR margin?

There’s no universal benchmark by industry, but as a rule of thumb:
* An EBITDAR margin in double digits (≥10%) is generally considered strong.
* Some high-margin businesses may see EBITDA/EBITDAR above 20%; compare peers within the same sector for context.

Bottom line

EBITDAR is a useful non-GAAP metric for isolating operating performance by excluding financing, tax, non-cash, and either restructuring or rent costs. It helps compare companies with different capital structures or one-time events, but it can also obscure recurring or cash-driven expenses. Use it alongside standardized measures (EBITDA, EBIT, net income) and industry benchmarks to get a balanced view.