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What is Earnings Before Interest, Taxes ,and Depreciation (EBITD)?

Earnings Before Interest, Taxes, and Depreciation (EBITD) is one method of viewing the earnings of a company with some of the typical expenses added back into it.

It is not to be confused with its close cousin EBITDA, which also adds amortization back in. Amortization is essentially the same thing as depreciation, but amortization applies to intangibles such as debt principal amounts and intellectual property.

EBITD is not a GAAP (Generally Accepted Accounting Principals) method of creating a financial statement, but it is used rarely by companies and analysts, despite the fact that there is no standardization or regulation in the methods that must be used to arrive at the number.

EBITD adds the expenses associated with interest payments, taxes, and depreciation back into the earnings number for a given period. Earnings is also called net income at times, and is the bottom-line for a company after all expenses. Calculations such as EBITD and EBITDA attempt to give another snapshot of a company’s performance before some of the common expenses are taken out.

When it comes to interest, taxes, and depreciation, these could all change if the company or the government made a few changes, and it wouldn’t be because the company was performing very differently in terms of revenue or assets.

Amortization might be left out of this computation if a company recognized that the principal repayment schedule on a loan would not be likely to change for them the way the interest rate on such a loan might. It also might apply if a company was receiving a Transfer of Technology (ToT) from an acquired or merged company in the form of intellectual property, and this schedule was contractually binding.

Because these methods are non-GAAP, investors should cross reference these numbers with approved methods, in case a company is using them to trump-up their earnings for the sake of publicity.

Keywords: Generally Accepted Accounting Principles (GAAP), EBITDA, intangible assets, Transfer of Technology (ToT), intellectual property, bottom line, corporate accounting,