EBITDAR stands for Earnings Before Interest, Taxes, Depreciation and Amortization, and Restructuring or Rent Costs. Like EBITDA, it is a key metric for evaluating a hotel’s profitability and performance. However, EBITDAR is more widely used for hotels or properties that have undergone restructuring within the past year.
What is EBITDAR For?
EBITDAR can be used alongside EBIT and EBITDA. It is also a useful KPI for hotels, restaurants, casinos, and other businesses that have unique rent costs. The purpose of EBITDAR is to measure a hotel’s core operational performance. By removing the costs of rent or restructuring, EBITDAR provides a better analysis of the profitability of a hotel’s ongoing operations.
Benefits of EBITDAR
Using EBITDAR in a hotel profitability analysis helps managers reduce variability and focus specifically on costs related to the hotel’s operations. The benefit is a more accurate comparison of a hotel to its peers in the same industry. Another benefit of EBITDAR is that it can be a useful metric for a hotel to obtain financing from a creditor.
Limitations of EBITDAR
EBITDAR can provide a skewed picture of a hotel’s cash flow. Because of the many exclusions, it is also easy to manipulate EBITDAR calculations. Adding depreciation costs to a hotel’s earnings earnings, for example, fails to account for the recurring expenses of capital spending, which can have a large impact on a hotel’s overall working capital.
How is EBITDAR Calculated
EBITDAR is calculated by adding net earnings, interest, taxes, depreciation and amortization, and rent/restructuring costs. Many companies calculate EBITDA as a single line item on an earnings report, so EBITDAR can also be calculated by adding rent and restructuring costs to a hotel’s existing EBITDA calculation.
Example of EBITDAR Calculation
EBITDAR = Earnings + Interest + Tax Expenses + Depreciation and Amortization + Rent/Restructuring Costs
Net Earnings = $100,000,000
Interest = $30,000,000
Tax Expenses = $22,000,000
Depreciation and Amortization (D&A) = $20,000,000
Rent/Restructuring Costs = $13,000,000
EBITDAR = $100,000,000 (Earnings) + $30,000,000 (I) + $22,000,000 (T) + $20,000,000 (DA) + $13,000,000 (R) = $185,000,000 (EBITDAR)