Earnings Before Interest, Tax, Depreciation, Amortization and Exploration (EBITDAX)
What it is:
How it works/Example:
EBITDAX is used to measure the ongoing operating profitability by adding back non-cash expenses as well as the expenses the firm would incur for costs of exploration.
A company’s income statement is used to calculate EBITDAX. It is not included as a line item, but can be easily derived by using the other line items that must be reported on an income statement.
The formula for EBITDAX is:
EBITDAX = EBIT + Depreciation + Amortization + Exploration Expense
Let's take a look at a hypothetical income statement for an oil and gas exploration company, Company XYZ:
To calculate EBITDAX, we find the line items for EBIT ($650,000), depreciation ($50,000), amortization ($20,000) and exploration expense ($80,000) and then use the formula above:
EBITDAX = 650,000 + 50,000 + 20,000 + 80,000 = 800,000
Why it matters:
EBITDA provides an important gauge of a company's ability to repay a loan, as it is essentially the income a business has free for interest payments. EBITDAX goes a step further by adding back exploration expenses to give a measure of ongoing profitability to assist in financing further exploration efforts. Both measurements are non-GAAP (Generally Accepted Accounting Principles).
Critics of EBITDA and EBITDAX claim that because both measurements are non-GAAP, they give companies wiggle room to misrepresent financial health by inflating expenses. Critics also claim more traditional GAAP measurements of cash flow and operating income give a more accurate financial picture.