What Does EBITDARM Mean?
Earnings Before Interest, Taxes, Depreciation, Amortisation, Rent, and Management Fees (EBITDARM) is an extension of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). EBITDARM gives the actual trading results of a firm for a given period. This is generally used for firms where the rent and management fees form a relatively large element of operating costs.
Divestopedia Explains EBITDARM
EBITDARM is more relevant than EBITDA for industries that lease premises, such as health care. Similarly, restaurants, casinos and other businesses requiring storage areas also employ EBITDARM to assess trading results. It can also be used for comparing two firms within the same sector where one operates from owned property and the other from a rental property. When a firm has changed its location, EBITDARM can help compare the firm's performance before and after relocation, exclusive of the difference in rental.
EBITDARM can be derived from EBITDA by adding back the management fees and the cost of locating the business. This allows the users of financial statements to determine the level of profits required to service the business' finance, tax and capital costs. Credit rating agencies use this measure to assess a firm’s debt-servicing ability as EBITDA tends to inflate profits and can be more easily manipulated. Therefore, EBITDARM can be considered a debt-service coverage calculator that shows how change in income and capital assumptions affect profitability. For example, in firms where leases are capitalized as per generally accepted accounting principles (GAAP) rules, EBITDARM is used to evaluate a firm’s operating performance without regard to factors unrelated to operations.