Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Earnings Before Interest and Depreciation (EBID)

What it is:

Earnings before interest and depreciation (EBID) are a post-tax measure of a company's operating performance.

How it works (Example):

The formula for EBID is:

EBID = EBIT + Depreciation - Taxes

EBID can be easily derived from the company's income statement.

Let's take a look at a hypothetical income statement for Company XYZ:

Note that Company XYZ does not have any amortization (many companies don't).

Adding depreciation expenses to EBIT will result in the EBITD. Taxes are then subtracted from EBITD to find EBID.

Using the formula above, Company XYZ's EBID is:

EBID = $750,000 + $50,000 - $100,000 = $700,000

Why it Matters:

EBITDA is one of the operating measures most used by analysts, but EBID is far less popular. EBID does include the direct effects of financing decisions in that the taxes a company pays is a direct consequence of its use of debt. Such analysis is particularly important when comparing similar companies across a single industry.

EBID, like EBITDA, can also be deceptive when applied incorrectly. EBID can be trumpeted by companies with low net income in an effort to "window-dress" their profitability. EBID will almost always be higher than reported net income.

Also, because EBID isn't regulated by GAAP, investors are at the discretion of the company to decide what is, and is not, included in the calculation from one period to the next. Therefore, when analyzing a firm's EBID, it is best to do so in conjunction with other factors such as capital expenditures, changes in working capital requirements, debt payments, and, of course, exceptional items.

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