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EBITDAR

Definition - What does EBITDAR mean?

Earnings before interest, taxes, depreciation, amortization, and restructuring costs (EBITDAR) is an extension of EBITDA and is generally used by firms that are undergoing substantial restructuring.

Divestopedia explains EBITDAR

EBITDAR is used for internal analysis as well as by debtors and creditors. The metric is most relevant to firms that are undergoing restructuring, as restructuring costs are non-recurring expenses. EBITDAR is a tool used in investment analysis to evaluate a firm’s operating performance without regard to factors that are unrelated to operations. It measures the profitability of the firm, irrespective of its capital structure, tax rate, and primary non-cash items, such as depreciation or amortization. Restructuring costs are also excluded. It is particularly beneficial when comparing firms in the same sector with a different structure of assets.

EBITDAR is used to evaluate resource allocation for operating units. In the retail sector, EBITDAR indicates the financial health of franchisees. It serves the distinct purpose of analyzing the profitability of different retail locations, as location-specific costs are uncontrollable costs. Furthermore, debt-service coverage, which indicates a borrower’s capacity to service a loan, is more accurately indicated by EBITDAR than EBITDA. EBITDA tends to inflate profits and can be more easily manipulated. It makes the firm appear more attractive to investors than it really is. Though EBITDAR is not a standard metric as per GAAP accounting practices, it is widely used for evaluating investment alternatives.

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