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Earnings Before Interest and Depreciation (EBID) : What It Is

Earnings Before Interest and Depreciation (EBID) is a post-tax measure of a company's operating performance that includes the direct effects of financing decisions. EBID is calculated by taking Earnings Before Interest and Taxes (EBIT) and adding back depreciation expenses, then subtracting taxes. This gives a measure of performance that accounts for taxes paid as a consequence of a company's use of debt. While EBID can be used to analyze companies, it is best to consider it alongside other financial factors as EBID may be inflated to make profitability appear higher.

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375 views2 pages

Earnings Before Interest and Depreciation (EBID) : What It Is

Earnings Before Interest and Depreciation (EBID) is a post-tax measure of a company's operating performance that includes the direct effects of financing decisions. EBID is calculated by taking Earnings Before Interest and Taxes (EBIT) and adding back depreciation expenses, then subtracting taxes. This gives a measure of performance that accounts for taxes paid as a consequence of a company's use of debt. While EBID can be used to analyze companies, it is best to consider it alongside other financial factors as EBID may be inflated to make profitability appear higher.

Uploaded by

Naman Verma
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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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