Ever since EBIT was invented accountants have been adding letters to it in a supposed effort to refine it. A was the first letter with EBITA, followed by DA. EBITDA has surpassed both EBIT and EBITA in fame, success and general usage. But there are others.
EBITDAR
An accountant somewhere came up with an R to give us EBITDAR. The R can represent either rent or restructuring, and accountants cannot agree which is the correct one. Purists believe it is rent. They add rent back in to give a true picture of the financial health of a business for which rent is a major expense. Restaurants are the businesses highlighted in textbooks. By comparing the EBITDAR of a restaurant in say New York where rents are high, with the EBITDAR of a one in the Highlands of Scotland, accountants are able to evaluate core profitability. What they forget though is that if a restaurant can’t afford to pay the rent, it closes, regardless of where it is.
Other accountants decided:
“We already have an R, let’s use restructuring not rent for EBITDAR. No need to invent another one. Restructuring, after all”, they say, “is an exceptional expense too and should be taken out.”
I guess if you want to add back both rent and restructuring at the same time, EBITDARR should become popular. I’m not holding my breath.
EBITDARM
Yet another set of accountants came up with the idea of EBITDARM. Why not, they thought, also add back in management fees? After all, in some businesses, management fees (like rents) are a high portion of operating expenses. They did not, however, consider that some business may have high management fees but low rents. This would give us EBITDAM and conjure up strange images from the water industry.
This is getting out of hand, some accountants say. EBITDAMN earnings before interest, taxation, depreciation, amortisation, and management fees. No more.
EBITDAaL
But they keep going. [They can’t help themselves.] The latest invention, from accountants presumably fond of Indian food is EBITDAaL. They had several choices given the multiple spellings available: dal, dahl, daal or dhal. But note how inventive they are in choosing the lowercase ‘a’, to make it more visible in written text and to differentiate it from the others. Although some prefer EBITDA-AL. The ‘al’ part means ‘after leases’ and came about after the introduction of IFRS 16. Apparently, telecom companies have adopted EBITDAal as a key indicator of performance because of high lease expenses (but not airline companies which have even higher ones – accounting logic no doubt). I will not go into the pros and cons of daal except to say that it is delicious.
EBITDAX
And would you believe it? Now there is an EBIDAX, where oil and petroleum companies or ‘natural resource exploration’ companies take exploration expenses out of their EBITDA in the usual search for core results. It should really be EBITDAE where the E is for exploration, but clearly an X is trendy compared to a boring old E.
The C in EBITDAC is for Covid related costs and impact. The P in EBITDAP takes out pension expenses. There is EBITDAF, where the humble F is doing the work of five words, ‘fair value movements of financial instruments’. Even acronym-addicted accountants realise that EBITDAFVMFI would probably be too much! But don’t put it past them to go further still. Soon, to calculate revenues, accountants will add back everything and declare that EBITDAALLEXPENSES is the new key catch-all acronym for revenues.
