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Guide to EBIDA: What It Is, How It Works, & How It's Used

What Is EBIDA & How Does It Differ From EBITDA?
Lauren Ward
Lauren WardUpdated June 17, 2022
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Earnings before interest, depreciation, and amortization (EBIDA) is an after-tax measure of a company's operating performance. It is similar to, but not nearly as commonly used as, earnings before interest, taxes, depreciation, and amortization (EBITDA). Here’s a closer look at what EBIDA means, how this metric is calculated, and how it compares to EBITDA.

What Is EBIDA?

EBIDA is a measure of the earnings of a company that adds interest (paid on debt) and depreciation and amortization expenses back to net income – the last line on the income statement. Unlike EBITDA, which adds back those items plus income taxes to net income, EBIDA does consider the effects of taxes on a company’s earnings. 

How Does EBIDA Work?

EBIDA measures a company’s financial performance before the influence of accounting or financial decisions, such as how much debt the business (interest) has taken on or how much money it has invested in property or equipment (depreciation). While those expenses are initially subtracted from a company’s operating revenue to calculate its net income, EBIDA adds them back as another way to evaluate a company’s financial performance. Here’s a look at specifically what EBIDA adds back to net income:
  • Interest This is the interest a business pays on any loans, such as any type of small business loan. It is excluded from EBIDA because it reflects the financing structure of the business, rather than the company’s core operations. Adding back interest to net income also makes it easier to compare the relative performance of two companies with different capital structures. 
  • Depreciation Depreciation is the process of writing off the cost of a tangible asset over the course of its useful life. Depreciation expenses will vary depending on whether a company has invested in long-term fixed assets that lose value due to wear and tear. It is excluded from EBIDA because it reflects historic investment decisions the company has made, but not its current operating performance. 
  • Amortization Similar to depreciation, amortization is the process of writing off the value of an intangible asset, such as a copyright, patent, or license, over its useful life. An intangible asset is amortized because its value diminishes over time due to expiration. It is excluded from EBIDA for the same reasons that depreciation is excluded.

EBIDA Formula

Like EBITDA, there is more than one way formula for calculating EBIDA.Formula 1: Net income + Interest + Depreciation + Amortization = EBIDAFormula 2:EBIT (Operating Profit) + Interest + Depreciation + Amortization - Taxes = EBIDA

What Is EBIDA Used For?

EBIDA is not a commonly used performance metric. However, it can sometimes be helpful for comparing two different companies in the same industry because it shows earnings before the influence of accounting and financial deductions, which can vary depending on a company’s capital structure.EBIDA is also used as a performance metric for companies that do not pay taxes, such as hospitals, religious organizations, charities, and other nonprofits. In this case, EBIDA can be used interchangeably with EBITDA. Recommended: Guide to EBITDAR: What You Should Know 

EBIDA vs EBITDA

Both EBIDA and EBITDA are financial metrics that are sometimes used in place of net income to evaluate a company’s operational performance. With both metrics, interest on debt and the noncash accounting expenses depreciation and amortization are added back to net income. Unlike EBITDA, however, EBIDA does not add back income taxes. Because it includes the tax expense in the earnings measure, EBIDA is considered to be a more conservative valuation metric than EBITDA. EBIDA removes an assumption made in EBITDA – that some of the money used to pay taxes can be used to pay down debt. EBITDA assumes this because interest payments on business loans are tax deductible. This lowers a company’s tax burden, giving it more money to pay off debt. EBIDA, on the other hand, doesn’t assume that taxes can be lowered through interest expenses. As a result, it does not add taxes back to net income. EBITDA is a much more commonly used performance metric than EBIDA. In fact, EBITDA and seller’s discretionary earnings (SDE) are typically the most common metrics used to value a small business.Neither EBIDA nor EBITDA are compliant with the Generally Accepted Accounting Principles (GAAP). However, EBIDA is somewhat closer to compliance than EBITDA because it does consider the effect of taxes on a company’s net income.
EBITDAEBIDA
Widely accepted as an earnings metric✓X
Adds back interest, depreciation, and amortization to net income✓✓
Includes the effect of income taxes on earningsX✓
Is listed after net income on an income statement✓✓
Considered by analysts to be a more conservative numberX✓
Recommended: Net Operating Income vs EBITDA: Similarities, Differences, and How to Calculate

Pros and Cons of EBIDA

Pros of EBIDACons of EBIDA
Can be used to compare the operational performance of two companies in the same industry that have made different debt/investment choicesIs not widely used by analysts in any industry
Does not differ as much from net income as EBITDAIs not GAAP-compliant

EBIDA Example

Let’s take a look at a recent Home Depot income statement (note: all values are recorded in USD millions):
Sales/ Revenue151,157
COGS102,711
Depreciation2,650
Amortization212
Gross Income48,446
SG&A Expense25,406
Interest Expense1,347
Pre-tax income21,737
Income Tax5,304
Net income16,433
EBITDA25,902
Notice how Home Depot doesn’t list EBIDA after net income. Once again, this is because it is not a common performance metric used by analysts. However, it is easy to calculate using the information posted on the income statement. The formula to calculate EBIDA is:Net income + Interest + Depreciation + Amortization = EBIDAFor Home Depot, this would be:16,433 + 1,347 + 2,650 + 212 = 20,642EBIDA = 20,642Notice that Home Depot’s EBIDA is lower than its EBITDA (because it doesn’t add back income taxes), but higher than its net income (because it adds back interest, depreciation, and amortization expenses).

The Takeaway

Like EBITDA, EBIDA is a performance metric that allows analysts and investors to quickly gauge a company’s financial performance in a given reporting period. It includes the effect of taxes on net income, but it removes any costs associated with interest, depreciation, and amortization. Because of this, it can be considered a more conservative metric than EBITDA when analyzing a company. However, EBIDA is not commonly used.Neither EBIDA nor EBITDA is GAAP-compliant. So if you’re applying for a small business loan, you can include your company’s EBIDA or EBITDA number, but will still also need to include its net income.

3 Small Business Loan Tips

  1. Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders.
  2. If you are launching a new business or your business is young, lenders will consider your personal credit score. Eventually, though, you’ll want to establish your business credit.
  3. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.

Frequently Asked Questions

How are EBIDA and EBITDA different?
What does the acronym EBIDA stand for?
What is the formula for EBIDA?
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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