Explanation :
Financial analysts use this metric to determine the financial health of a company based on its operating cash flows irrespective of depreciation , amortization or any restructuring or rent cost; therefore, this metric has a direct impact on a firm’s and ability to receive a suitable line of credit based on the cash available before all these costs are covered. This ratio is mostly relevant to firms that undergo restructuring, seeking to evaluate the allocation of resources in the firm’s core operations. Formula : EBITDAR = EBIT + Interest + TaxesIn a nutshell :
- EBITDAR is a profitability measure, like EBIT or EBITDA, but it's better for casinos, restaurants, and other companies that have non-recurring or highly variable rent or restructuring costs.
- EBITDAR gives analysts a view of a company's core operational performance apart from expenses unrelated to operations, such as taxes, rent, restructuring costs, and non-cash expenses.
- Using EBITDAR allows for easier comparison of one firm to another by minimizing unique variables that don't relate directly to operations.
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