What is Operating Income Before Depreciation and Amortization (OIBDA)?
Operating income before depreciation and amortization (OIBDA) is a measure of the income generated or used by a company in a given period exclusive of the company's capital spending decisions and its tax structure.
How Does Operating Income Before Depreciation and Amortization (OIBDA) Work?
It is important to note that OIBDA is not the same as EBITDA. OIBDA starts out using operating income and then adds back depreciation and amortization (see formula below). EBITDA starts out using earnings (aka, net income) and adds back interest, taxes, depreciation and amortization. The difference is subtle, but important.
The formula for OIBDA is:
OIBDA = Operating Income + Depreciation + Amortization
If operating income is net of taxes and interest, those items should be added back as well.
Let's assume that Company XYZ has operating income of $2,000,000, depreciation of $200,000, and amortization of $10,000. Using the formula above, the company's OIBDA is:
OIBDA = $2,000,000 + $200,000 + $10,000 = $2,210,000
We add the depreciation and amortization back to operating income because depreciation and amortization are typically included as operating expenses; hence, we want to calculate operating income excluding those items.
Why Does Operating Income Before Depreciation and Amortization (OIBDA) Matter?
OIBDA is a measure of income exclusive of the effects of a company's capital spending choices. It also does not reflect the cash used for debt service, distributions, or other non-core operating expenses. In a sense, OIBDA gives investors a better sense of how efficiently a company operates purely based on its ability to create and sell its product or service.
OIBDA is a non-GAAP financial measure, meaning that it is not a standard calculation for companies and not necessarily required in their disclosure. As such, one company's OIBDA calculation might differ from the next company's calculation, so comparisons should be made with caution.
