The main factors influencing the financial indicator ebitda. What is EBITDA and the formula for calculating profitability. EBITDA in modern financial activities of companies

Economics is full of obscure terms in English. One of them is EBITDA (in Russian transcription EBITDA). In the article, we will consider what it is, how it is calculated and why it is needed.

In order to assess the financial performance of the company, there are many indicators. One of them is EBITDA. Since it is international, it is especially important to use it for those companies that have already entered or are just about to enter the global market.

What is EBITDA

A better understanding of this concept will help deciphering this term. EBITDA is formed from the initial letters of the English financial term Earnings before Interest, Taxes, Depreciation and Amortization. Literally, it can be translated as "earnings before interest on loans, tax and depreciation deductions." Using this term, you can evaluate how much a company is able to make a profit without taking into account the impact of loans, taxes and depreciation. Thus, investors can unbiasedly assess the profitability of the underlying activity.

This indicator is especially popular among large companies. It allows international conglomerates, which traditionally have large capital expenditures, to present their accounts in a more favorable light compared to standard reporting.

Video - what is EBITDA in simple terms:

Investors pay special attention to EBITDA. The amount of real profit calculated using this indicator can significantly exceed the similar indicator calculated using upfront costs. This is very important, especially for those enterprises where the share of depreciation is high. In some cases, it reaches up to 30% of the cost of production. This concerns, first of all, the steel industry.

Despite the fact that this indicator may distort the real state of affairs, it is still widely used by investors. This is due to the fact that it helps to assess how the company is able to service its debts and reinvest funds for the further development of the business.

History of the indicator in economics

Initially, EBITDA was used to measure a company's ability to service its obligations. To do this, the values ​​of this indicator were compared for individual companies from the same industry, on the basis of which the amount of interest payments that would be used to pay off the debt was calculated. From this point of view, the company was seen as an asset that could be sold at an attractive price.

At the same time, some nuances of calculating this indicator using this method can be noted. It was necessary to sum up the articles that could be used to pay off the debt. At the same time, the cost of paying taxes could be taken as an additional basis for calculating debts, provided that all the company's net profit was directed to the same purpose, and the business turned into a loss. As a result, the company ceased to function. But creditors benefited. This indicator was willingly used in the 80s of the last century.

What the EV/EBITDA ratio shows

Further, it is advisable to introduce the concept of EV and the EV/EBITDA ratio.

EV stands for Enterprise value, or company value. It can be defined as the sum of the capitalization of the enterprise and its debts. This benchmark is needed by investors to compare different companies.

The EV/EBITDA ratio shows the company's EBITDA value. The following formula is used to calculate it:

EV/EBITDA = (Cap + Long-Term Liabilities + Current Liabilities) / Earnings before taxes, interest and depreciation.

The billing period is one year.

This indicator is used to compare companies with each other. With its help, investors can understand how much the company is undervalued or overvalued by the market.

However, it is important to take into account the industry in which the assessed enterprise operates. Developing industries are characterized by a higher rate. EV/EBITDA for more traditional industries will be lower. The factor of the company's country of origin also influences the value of the indicator. Thus, the reverse situation is typical for developing economies, since traditional industries can develop at a faster pace than high-tech ones.

These factors should be taken into account when calculating the indicator.

Features and formula for calculating EBITDA

Since EBITDA is mainly used by companies that have already entered the global market, it is calculated according to international standards. This increases the competitiveness of domestic products, since in this case investors will have more complete information.

This indicator is not used in accounting. However, to calculate it, you need data from financial statements. Since they are widely available, it compares favorably with other profitability indicators by the simplicity of calculation.

To calculate EBITDA, you need to have the following information:

• net profit;
• income tax expenses and the amount of its reimbursement;
• emergency expenses and income;
• paid and received interest payments;
• depreciation deductions;
• revaluation of assets.

All of these figures, except for the last one, form operating income (EBIT). It is required to calculate EBITDA. To calculate it, it follows from the gross profit of the company to subtract the costs of day-to-day operations. The following formula will help you calculate:

EBIT= Net income + tax expense - tax refunded + extraordinary expenses - extraordinary income + interest paid - interest received

EBIT can only be positive. Now you can calculate EBITDA

EBITDA = EBIT + depreciation charges - revaluation of assets

It should be noted that we calculated the figure without taking into account payments: for taxes, debts and depreciation.

However, you can use a simplified formula for calculating EBITDA:

EBITDA = revenue - operating expenses

Also, the formula for calculating the indicator can be written as:

EBITDA = Income - Expenses + Taxes + Interest on debt + Depreciation charges

If you look at the balance sheet data in Form 2, then “Income” is taken from line 2110 “Sales proceeds”, and “Expenses”, respectively, from line 2120 “Full cost”. Lines 2410+2421 +/- 2450 form "Taxes", and line 2330 - "Interest on debts". As for depreciation charges, their value should be taken from the Annexes or Explanations.

To make the formulas clearer, let's give an example. To do this, we use a simplified formula. Suppose you need to calculate EBITDA for the Romashka company. To do this, we use the formula:

EBITDA = Profit before tax (2300) + Interest paid (2330) - Interest received (2320) + Depreciation

The Explanation to the annual financial statements indicates that the amount of depreciation is 60,000,000 rubles.

Data of the statement of financial results of Romashka LLC for 2017.

Then, EBITDA= 631,428,738 +119,740,422 - 67,912,187 + 60,000,000 = 743,256,973 (rubles)

According to the results of the calculation, it can be concluded that Romashka LLC is able to service its obligations, which form an annual payment on debts in the amount of not more than 743.3 million rubles.

Advantages and disadvantages of using such an indicator

Among the advantages of using the indicator, we note the following:

• ease of calculation of the indicator and availability of data;
• an opportunity to show the company's business in a more favorable light.

However, the following disadvantages of using EBITDA can be identified:

• the relative illegality of this concept. So, no accounting documents justify its existence, and the calculation formulas do not have official documentation. This gives companies the ability to distort the data;
• the calculation formula does not take into account many secondary factors and circumstances, which, nevertheless, can have a significant impact on the final result. Therefore, the indicator is not appropriate to use to determine the cash flow. For example, the formula does not take into account working capital, capital expenses, depreciation expenses.

These shortcomings indicate that EBITDA is not always appropriate to use to calculate the profitability of the enterprise.

Thus, EBITDA is of great importance for investors and company management to assess its profitability and competitiveness. However, often its values ​​can be distorted, because the formula does not take into account some important data.

Video - about the features of using the EBITDA indicator:

Economics often surprises with the number of obscure terms borrowed from different languages. Strange abbreviations and English concepts, often associated with a dark forest, can be explained in simple terms. Today, an unusual "beast" flashes in the business environment - EBITDA. Agree, the name is somewhat funny - the desire to joke arises almost involuntarily, but behind this set of letters lies the usual profit, nothing anecdotal: everything is as simple as two and two.

Let's discuss what EBITDA is and how to calculate it. For clarity, let's turn to an example and make calculations based on the data of a particular organization.

EBITDA - what is it in simple words?

To understand what EBITDA is, it is best to start by deciphering the English abbreviation that came from the phrase “earnings before interest, tax, depreciation and amortization”. The literal translation is as follows: "earnings before deducting the cost of interest on loans, taxes, depreciation and amortization."

EBITDA is calculated on the basis of financial statements that comply with IFRS or US GAAP. From the foregoing, it becomes clear that EBITDA is an analytical indicator that is widely used abroad to analyze the financial condition of organizations. Of course, Russian companies can also calculate it using the balance sheet for this purpose. This will be especially useful if the management of the enterprise seeks to establish international relations and take the business to a new level. The bottom line is that potential foreign counterparties are accustomed to assessing the financial position of partners by calculating a number of indicators, among which earnings before interest, taxes and depreciation play an important role.

Advice: if you are interested in foreign methods, then you should pay attention to, as it focuses on the strengths and weaknesses of the company and gives a chance to identify opportunities and threats in the external environment. Key performance indicators () are also very popular, helping to develop an effective company development strategy.

How to calculate EBITDA - step by step instructions

The EBITDA indicator is not used in accounting, that is, Russian companies are not at all obliged to calculate it, however, trade today is such a competitive environment that every far-sighted businessman wants to attract new investors. Those who invest in someone else's business, at least want to know how much it costs. This is what EBITDA is usually calculated for. How to calculate the indicator? We will try to answer this question in a simple language, considering two options for finding the desired profit.

First way

To find out the value of EBITDA, you will need:

• Determine the amount of income tax expenses;
• Calculate the refunded income tax;
• Find out the amount of interest payments received and paid;
• Make depreciation charges;
• Perform asset revaluation.

Then the original formula for calculating the indicator will look like this:

EBITDA= Net income + Income tax expense - Income tax refunded - Extraordinary income + Extraordinary expenses + Interest paid - Interest received + Depreciation - Revaluation of assets.

This formula complies with the requirements of IFRS and GAAP, which means that the EBITDA calculation made on it will be exactly the information that foreign investors want to receive.

Important: in order to calculate net profit, it is very important to correctly approach the definition of costs - special attention should be paid to.

Second way

This option is maximally adapted to Russian accounting standards, which allows you to make calculations using only annual reports, without resorting to searching for additional data, which, of course, greatly facilitates the calculation process.

EBITDA= Profit before tax + Interest paid - Interest received + Depreciation.

The data for the calculation should be taken from the statement of financial results of the company. In the document, each line has its own code, so the formula can be rewritten as follows:

EBITDA= line 2300 + line 2330 - line 2320 + Depreciation.

The amount of depreciation is taken from the annual accounts. It should be borne in mind that the calculation according to this formula does not make it possible to obtain a result devoid of some error, since the original version of the calculations involves working with a large amount of data.

An example of calculating the EBITDA indicator

Of course, any information is easier to perceive if the theory is confirmed by practice, so let's consider an example of calculating EBITDA. As a basis, we will take data from the financial statements of the organization Teremok LLC, which is engaged in the trade in building materials.

EBITDA\u003d 224,512 + 41,345 - 578 + 25,648 - 36,890 + 29,778 - 11,345 + 30,743 - 8,500 \u003d 294,713 thousand rubles.

Pros and cons of the EBITDA methodology

Like any other method for analyzing the financial condition of a company, EBITDA has a number of not only advantages, but also disadvantages.

The advantages include the following points:

• Simplicity and ease of calculation of the indicator;
• Information for determining EBITDA is usually publicly available;
• Business valuation through EBITDA allows you to present the state of affairs in a more favorable light than it actually is;
• Many investors are guided by the indicator in question.

But some negative aspects in the methodology can be identified:

• Lack of legislative approval of this method of assessing the financial condition of the company - not a single accounting document contains a word about EBITDA, that is, this method has no official confirmation;
• The formula by which the calculations are carried out does not take into account force majeure circumstances and various secondary factors that can to some extent affect the final result;
• Investors who analyze a company using EBITDA can be very mistaken, believing that the organization is doing much better than it really is, since the discussed methodology in some cases significantly distorts the real situation.

Thus, the shortcomings mentioned indicate that EBITDA is not always useful when calculating a company's profitability.

How is EBIT different from EBITDA?

EBIT is not some abstract number that is calculated just for show. And it cannot be attributed to the area of ​​reasoning and planning, for example. The metric is needed to value the business, meaning it actually determines the price that a hypothetical buyer might pay for the company. But, of course, the value of a business usually does not equal EBIT - its value is simply multiplied by a certain multiplier, which ranges from 3 to 5 abroad (for small and medium-sized businesses). In simple terms, a successful and enticing business is typically valued at 3-5 times higher than EBIT. The formula for calculating EBIT, which is based on international reporting standards, is as follows:

EBIT= Revenue of the organization - Direct costs.

In plain language, this is the company's gross profit. To calculate the foreign equivalent of EBIT, you need to perform the same steps as discussed above, but depreciation should not be taken into account. Then the formula will take the form:

EBIT= Net profit + Income tax expense - Income tax refund + Extraordinary expenses - Extraordinary income + Interest paid - Interest received.

That is, EBIT differs from EBITDA in that the latter takes into account the amount of depreciation and revaluation of assets. Having calculated EBIT, you can quickly find out the value of EBITDA:

EBITDA= EBIT + Depreciation charges - Revaluation of assets.

How to calculate EBITDA margin?

In foreign practice, there is often an indicator called EBITDA margin. It represents the ratio of EBITDA to revenue:

EBITDA margin= EBITDA / Sales revenue.

EBITDA margin is usually calculated when it is necessary to know the profitability of the company as a whole, that is, before any adjustment is made through the applicable tax system or the existing debt load.

The EBITDA margin is used when comparing the performance of a number of companies with different capital structures but roughly the same industry. Experts believe that a company develops well if its profitability exceeds 12-15%.

Summing up

EBITDA is an analytical indicator by which investors and banking structures assess the financial position of a company. Calculating it is no more difficult than doing it, however, for this it is necessary to have at your disposal the financial statements of the organization.

Currently, in the conditions of Russian reality, the methodology for calculating EBITDA is not fixed in any way by law. It’s hard to say whether it’s good or bad, since the indicator under discussion, for all its simplicity of calculation and apparent information content, often distorts the real state of affairs, misleading counterparties or hypothetical business buyers.

Historically, the calculation of EBIT and EBITDA is based on US GAAP reporting data, however, EBIT and EBITDA indicators are also used to analyze the financial position and assess the value of companies, which, among other things, prepare reports according to international standards.
The calculation of these indicators based on IFRS reporting has its own characteristics. In addition, companies use different methodology for calculating these indicators.

EBIT and EBITDA: calculation and meaning of indicators

EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation and amortization) indicators are not established by international financial reporting standards or national standards of Western countries as mandatory indicators.

These and some other indicators are called non-GAAP financial measures (“indicators that are not US GAAP financial measures”).

However, both EBIT and EBITDA are very widely used by analysts, investors and other stakeholders to assess the financial position and value of companies.

History of EBITDA
Historically, EBITDA has been used to measure a company's ability to service debt, meaning it, combined with net income, has provided information about how much interest payments a company can make in the short term. First of all, EBITDA was used by investors who considered the company not as a long-term investment, but as a set of assets that could be profitably sold separately, while EBITDA characterized the amount that could be used to repay loans.

Such a scheme (leveraged buyouts, in which a company is bought out with borrowed funds) was widespread in the 80s. Then the EBITDA indicator began to be used by most companies and today has become one of the most popular indicators. It shows the income that the business has generated in the current period and therefore can be used to evaluate the return on investment and self-financing opportunities.

Calculation of EBIT and EBITDA indicators
The classical calculation of these indicators is quite simple: in order to calculate them, you need to start with the net profit indicator for the period:

EBIT = Net Income - (Interest Expense/Income) - (Income Tax).

From the net profit indicator, it is necessary to exclude indicators of financial (interest) expenses or income, income tax:

EBITDA = EBIT - (Depreciation of fixed assets and intangible assets).

Example 1
Statement of comprehensive income for the year ended 12/31/2014

As you can see from the example, three companies whose net income differs significantly have the same EBITDA. The EBIT indicator is the same for companies with the same depreciation load, although company 1 made a profit at the end of the year, and company 2 made a loss (including due to different tax and debt burdens).

The meaning of EBIT and EBITDA
EBIT is an intermediate measure of earnings before interest and taxes.
EBITDA is a "cleaned" measure of net income from depreciation, interest and income tax, which allows you to evaluate the company's profit, regardless of the impact:

• the amount of investment (adjustment for the amount of accrued depreciation);
• debt burden (adjusted for interest);
• tax regime (adjustment for income tax).

The main purpose of EBITDA is to use this indicator to compare different enterprises operating in the same industry, including for benchmarking purposes. At the same time, the size of investments, the debt burden or the applicable tax regime are not important - only the type of activity and operating results matter. Thus, EBITDA makes it possible to compare companies with different accounting policies (for example, in terms of accounting for depreciation or revaluation of assets), different tax conditions or levels of debt.

Criticism
The main criticism of EBITDA is as follows: by clearing the indicator from depreciation, we deprive the user of information about the company's need for investment.

At the same time, companies with a high depreciation load and a high need for reinvestment (extractive industries, manufacturing, and others) are interested in actively using this indicator and inflating their results, since the depreciation adjustment significantly improves the profit indicator.

This criticism is justified, but in any case, EBITDA should be considered in conjunction with other indicators, including EBIT, which, having the advantages of "clearing" from taxes and interest, contains depreciation. It is also necessary to analyze other indicators such as gross margin, operating and net income.

Additionally, EBIT and EBITDA indicators are criticized for the fact that in the classical version they contain all income - both from regular activities (operating) and from one-time operations (non-operating). Most companies calculate EBIT and EBITDA by subtracting non-operating income and expenses, excluding non-operating results. In addition, as an alternative option, many analysts, investors and CFOs of companies use operating income to assess the company's regular activities and the ability to predict the generation of operating cash flows. However, additional cleaning of indicators can be dangerous in that the amount of non-operating income and expenses, as well as the indicator of operating profit, will become the subject of manipulation when non-operating expenses and operating profit turn out to be significantly overestimated, which should also be taken into account when analyzing the company.

Analysis using EBIT and EBITDA
Currently, EBIT and EBITDA are widely used in the analysis of companies. The following derived indicators are used, among other things:

• EBITDA margin % (EBITDA margin);
• Debt/EBITDA (liabilities/EBITDA);
• Net Debt / EBITDA (net debt / EBITDA);
• EBITDA / Interest expense (EBITDA / interest expense).

Credit institutions can set their own target values ​​of indicators by which they monitor the financial position of borrowing companies.
Company owners can also set target values ​​with which they analyze the financial position and development of companies, as well as evaluate the performance of management
companies.

Differences between EBIT and EBITDA and operating income

Operating income and EBIT/EBITDA are different measures. If the classic EBIT / EBITDA indicators include all income and expenses - operating and non-operating (except for interest, taxes and depreciation), then non-operating income and expenses are not included in operating income.
Non-operating (or non-operating) income or expenses are considered irregular or one-time income and expenses that are not related to the normal activities of the company. For example, most often these are income from investment activities (if such activities are not regular for the company), proceeds from a one-time operation of irregular activities, expenses not related to the activities of the company, exchange differences, discontinued activities, and others. At the same time, the profit (loss) from the sale of fixed assets, allowance for doubtful debts, impairment of assets, as well as most other expenses, as a rule, are part of operating income.
Operating income is included in the calculation of another non-GAAP indicator - OIBDA (operating income before depreciation and amortization - operating income before depreciation of fixed assets and intangible assets). As you can see from the name of the indicator, the difference between OIBDA and EBITDA is the composition of profit: OIBDA contains only operating income, non-operating income and expenses are excluded.

Example 2
Using the data from Example 1, we calculate OIBDA for three companies.
The OIBDA margin in this case is higher than the EBITDA margin, as it does not contain the amount under the “Other expenses” item.

At the same time, despite the different indicators of operating profit, OIBDA is the same for all three companies under consideration.

Features of IFRS requirements for operating results
Reflection of non-operating results - in the rules of US-GAAP reporting, while IFRS contains a requirement not to record items as extraordinary items.

On the one hand, entities may, but are not required to, report an interim operating profit above profit (loss) for the period. In general, the concepts of "operational" or "non-operational" are not defined by international standards.

On the other hand, an entity should present additional line items, headings and subtotals in the statement presenting profit or loss and other comprehensive income when such presentation is relevant to an understanding of the entity's financial results. Because the impacts of an entity's activities, operations, and other events vary in terms of frequency, potential for profit or loss, and predictability, disclosing information about the components of financial results helps users understand their financial results and forecast future results.

An entity includes additional items in the statement presenting profit or loss and other comprehensive income and adjusts the headings used and the order in which the items are presented, if necessary to clarify the elements of financial results. An entity considers factors including materiality and the nature and function of income and expense items.

Often, companies in IFRS statements are indicated in the article “Other income” or “Other non-operating income” (Other income / Other non-operational income), as well as “Other expenses” or “Other non-operating expenses” (Other expenses / Other non-operational income). expenses) the results of activities that are considered irregular and not related to the main operating activities.

This feature of international standards may cause OIBDA from EBITDA in the part used to calculate profits to be identical if the company does not highlight the results for non-regular activities. However, often companies, independently determining the nature of items and wanting to improve operating profit, may overestimate non-operating expenses. In this sense, the IFRS requirement not to define items as extraordinary or non-operating items is quite reasonable and dictated by the need not to mislead the user of statements.

Thus, the company, presenting the calculation of EBIT and EBITDA, for the purposes of determining these indicators, can identify items with financial results of irregular operations and use them in the calculation. It is not required, but it is recommended to disclose the calculation method.

Adjusted EBITDA

EBIT and EBITDA are very popular and widely used to assess the financial position and value of companies; many companies include non-GAAP indicators in their financial statements, including those prepared according to international standards.

However, the methodology for calculating these indicators in different companies may differ. Different calculation methods lead to the incomparability of the performance of different companies (that is, they level out the main advantage of EBIT and EBITDA). In addition, various approaches to the formation and presentation of non-GAAP indicators in reporting provide great opportunities for manipulating these indicators in an effort to improve them.

The active use of these indicators by investors and the presentation of non-GAAP indicators by companies in their financial statements caused the regulator to pay attention to these indicators in the early 2000s. Initially, EBIT and EBITDA were calculated based on US GAAP reporting and are currently governed by US SEC (US Securities and Exchange Commission) rules. SEC rules establish a classic formula for calculating EBIT and EBITDA based on US GAAP reporting and do not allow these figures to be cleared from other expenses, except for income tax, interest and depreciation. Indicators that are calculated in a different way cannot be called EBIT and EBITDA, so companies that deviate from the classical formula for one reason or another call these indicators differently, most often adding the definition of “adjusted” (adjusted): “adjusted EBIT”, “adjusted EBITDA", "adjusted OIBDA" and so on.

Most often, EBITDA is additionally cleared from the following items in the statement of comprehensive income:

• extraordinary (non-operating) income and expenses (if reporting standards allow the existence of such items or if they can be identified from additional disclosures);
• exchange differences;
• loss from the sale (disposal) of assets;
• impairment losses for various groups of assets, including goodwill;
• stock-based compensation;
• share of the result in associates and joint ventures and operations;
• accrual of reserves for various needs.

Example 3
As an example, consider the Gazprom Neft Group's 2014 financial statements prepared in accordance with IFRS.
In Note 39 “Segment Information” on page 55, the company discloses adjusted EBITDA by segment and comments as follows: “Adjusted EBITDA represents the Group's EBITDA and its share of EBITDA of associates and joint ventures. Management believes that Adjusted EBITDA is a useful tool for assessing the performance of the Group's operations, as it reflects the evolution of earnings without taking into account the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortization, foreign exchange gains (losses), other non-operating expenses and includes the Group's share of income of associates and joint ventures. EBITDA is an additional non-IFRS financial measure used by management to measure performance.”
Further, on page 57, the calculation of Adjusted EBITDA is disclosed.:

In the calculation of EBITDA, the company includes “Foreign exchange loss” and “Other expenses”, which it considers non-operating. Further, the indicator is adjusted for the results of associates and joint ventures.
If we calculate EBITDA using the classic formula, we get the following data:

For 2014, the difference between the classic and adjusted figures is quite significant - about 30%, mainly due to a significant amount of exchange rate differences and the share of EBITDA in associates.

Example 4
Let's consider another reporting - X5 Retail Group for 2014 in accordance with IFRS.
The statements show the calculation of adjusted EBITDA (“adjusted EBITDA”) (p. 98), from which it can be seen that, in addition to depreciation, taxes and net interest expenses, the loss is additionally deducted
from impairment (impairment), exchange differences (net foreign exchange result) and the share of loss in associated companies (share of loss
of associates).

If we do a classic EBITDA calculation, we get the following results:

Classic EBITDA is 6% less than adjusted EBITDA for 2014 mainly due to the impact of impairment of property, plant and equipment and intangible assets; according to the results of 2013, the indicators are almost equal, since the impact of asset impairment was insignificant.

Features of calculating EBIT and EBITDA according to IFRS reporting

Impairment loss
Impairment accounting for assets is governed by IAS 36, as well as other standards governing the accounting for impairment of related assets (for example, IAS 2, IAS 39).
Classical EBITDA should not be cleared of any impairment loss, but adjusted figures are often cleared of such non-monetary items. Quite often, companies remove the impairment of goodwill and other intangible assets from the calculation, citing the fact that these losses occur one-time and do not relate to the regular operating activities of the company. In addition, the argument is that the impairment of fixed assets and intangible assets is close in meaning to depreciation and should also be excluded from EBITDA.

Interest income
The formula for calculating EBIT and EBITDA contains the indicator "Interest (or financial) expense" (interest or finance expense). It should be taken into account that this refers to the net result of accrued interest income and expenses (net interest expense). Accordingly, accrued interest income should be included in the calculation of EBIT and EBITDA (interest income should be deducted from the calculated figure).

Share resulting from associates and joint ventures and operations
Accounting for investments in associates and joint ventures and operations is governed by IAS 28 and IFRS 11.

The classic formula for calculating EBIT and EBITDA does not include the subtraction of the share of profit or loss of associates and joint ventures and operations, however, the adjusted figure can often either be cleared of this income or expense, or, as in the Gazprom Neft Group reporting in example 3 above, adjusted from taking into account the specifics of participation as a result of associates and joint ventures and operations.

Extraordinary income and expenses
Some sources claim that EBIT and EBITDA figures exclude extraordinary income and expenses.

However, first, as described above, IAS 1 explicitly requires that no items of income or expense be presented in the statements of profit or loss and other comprehensive income or in the notes as extraordinary items. This means that in IFRS reporting we cannot always see the amounts that are characterized by the enterprise as extraordinary or non-operating income or expenses, and, therefore, we cannot use them in the calculation.

Secondly, the classic SEC methodology does not allow clearing EBIT and EBITDA from additional items other than taxes, interest and depreciation; while net income under US GAAP (net income) contains non-operating expenses and income. Therefore, to calculate EBIT and EBITDA, IFRS reporting data, which does not contain allocated extraordinary income and expenses, is sufficient.

Profit/loss from the sale of fixed assets and intangible assets
Profit/loss from the sale of fixed assets and intangible assets is included in the net income for the period and is not deducted when calculating EBIT and EBITDA. However, sometimes companies deduct this profit or loss from an adjusted figure, especially if such a transaction is sufficiently unusual for the company's activities and the amount of the transaction is significant.

Stock-based compensation (remuneration to employees and directors in equity instruments)
The accounting for share-based awards is governed by IAS 19 and IFRS 2. Under IFRS, if goods or services received or acquired in a share-based payment transaction do not qualify for recognition as an asset, then they should be recognized as expenses.

Some companies deduct these costs from EBIT or EBITDA as "non-cash" (non-cash), although the classical method of calculation does not deduct these costs.

income tax
Income tax reporting is governed by IAS 12. Income tax includes both current tax and deferred income tax expense or income. To calculate EBIT and EBITDA, all accrued expenses or income related to income tax must be taken into account in the calculation formula.

In some cases, companies adjust the income tax figure to calculate EBIT and EBITDA, correcting taxable income for expenses and income, which are taken into account when calculating EBIT and EBITDA.

It is important to note that, in accordance with IFRS, income taxes withheld from dividends paid are not included in income tax, but are an integral part of dividends and, accordingly, are not disclosed in profit (loss) and are not included in the calculation of EBIT and EBITDA.

Other comprehensive income
In IFRS, much attention is paid to describing the requirements for the recognition of items in profit (loss) or other comprehensive income.

As a rule, the calculation of EBIT and EBITDA indicators includes data from the section (or report) on profit (loss); data that is included in other comprehensive income is generally not included in the calculation of EBIT and EBITDA. These may include revaluation amounts of property, plant and equipment, intangible assets, pension plans, the effective portion of profits and losses from hedging instruments for cash flow hedges, foreign exchange and translation differences, the share of other comprehensive income of associates and joint ventures, expenses and income from deferred taxes relating to to components of other comprehensive income, and other items.

Presentation of EBIT and EBITDA in IFRS statements
Most often, companies present non-GAAP figures in supplementary reports, releases, and presentations, but it is not uncommon for EBIT and EBITDA to be disclosed in financial statements.
EBIT and EBITDA may be disclosed both in the statement of comprehensive income and in the notes—there is no prohibition on the use of non-GAAP measures. There are also no explicit IFRS requirements for additional disclosure of the calculation of non-GAAP indicators, however, given the importance of these indicators for users, companies are encouraged to make such disclosure.
Below are examples of the statement of comprehensive income of companies whose depreciation may be disclosed in different parts of the statement.

If in a manufacturing company depreciation is contained in the cost of production, then, for example, in a telecommunications company, depreciation can be disclosed as a separate line.

EBITDA (Earnings before interest, taxes, depreciation and amortization) is earnings before interest, taxes and depreciation. The EBITDA calculation is used to measure a company's operating profitability, as it only takes into account those expenses that are necessary for the "day-to-day" running of the business. However, due to its flexibility, a significant difficulty arises when using EBITDA as an indicator of profitability: since the calculation of EBITDA on the balance sheet is not officially regulated, companies can manipulate this indicator, presenting the business as more profitable than it actually is.

To analyze the financial condition of a company and get a complete picture of its profitability, corporate financiers and investors carefully study financial statements and balance sheets. This process uses a range of metrics and related financial ratios to measure profitability. As a rule, analysts consider standardized profitability measures set out in generally accepted accounting principles - GAAP and IFRS, since they are easily comparable between enterprises and industries. At the same time, there are indicators not related to them, but also widely used in practice. One of them is EBITDA.

For example, only operating income is used as the source of income in the calculation. With this definition of profit, EBITDA is most closely related to operating profit. At least in theory, excluding asset depreciation costs is the only real difference between the two figures. Since operating income is shown in the company's income statement, the easiest way to calculate EBITDA is to start with a GAAP/IFRS figure and work backwards (EBITDA formula 1)

EBITDA = Operating profit + Depreciation expense

EBITDA Calculation Example

For example, for the fiscal quarter ending June 30, 2017, the company had operating income of $128.79 million and depreciation expense of $29.05 million. The above formula for calculating EBITDA in this case will give the following result:

$128.79 million + $29.05 million = $157.84 million

However, many companies interpret the name of this indicator literally, including all expenses and sources of income, regardless of their connection with the main operations. Under this method, EBITDA is calculated from net income plus a write-off of taxes, interest and depreciation. This calculation formula allows any additional income from investments or secondary operations, as well as one-time payments for the sale of an asset, to be included in profit. (EBITDA calculation formula 2):

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Using the example above, in addition to depreciation expense, the company has a net income of $70.28 million, taxes of $56.43 million, and $2.08 million in interest. quarterly payments. Under this calculation model, EBITDA for the same fiscal quarter would be:

$70.28 million + $2.08 million + $56.43 million + $29.05 million = $157.84 million

It is worth noting that EBITDA formulas can give different results. Differences in EBITDA calculations can be explained by the sale of a large number of equipment or high investment returns, but if these parameters are not explicitly stated, the result can be misleading. An unscrupulous company can easily use one calculation method this year and switch to another the next year to overestimate its performance. If the calculation method remains the same from year to year, EBITDA will be very useful for comparing historical performance.

The difference between operating margin and EBITDA

Operating margin and EBITDA are two measures of a company's profitability. Although they are related, they show different measures of profit and different points of financial analysis for a company.

Operating margin, also called operating profit margin, is one measure of a company's profit margin. It is calculated as a percentage of total sales revenue, with all costs of doing business accounted for in the formula, excluding taxes, interest, investment gains or losses, and any gains or losses from events outside of the company's normal business operations, such as sale of real estate, buildings, etc. Costs included in the calculation of operating margins include salaries and benefits for employees and independent contractors, administrative expenses, the cost of parts or materials needed to manufacture goods sold by the company, advertising and depreciation costs. Operating margin calculations help companies analyze and reduce the variable costs associated with doing business.

While there is some overlap between the figures used to calculate operating margin and EBITDA, EBITDA is generally considered to be more closely related to net income, as net income provides the base amount from which EBITDA is calculated. Net income is a rough estimate of a company's profitability, as it includes all company costs and expenses, taxes, interest, one-time or extraordinary expenses, and amounts that are not included in the calculation of operating profit. EBITDA is the sum of net income with taxes, interest, depreciation added to that amount. Thus, EBITDA includes both measures that are usually classified under net income (taxes and interest) and the figure that is usually classified under operating income (amortization).

EBITDA margin and risks of using EBITDA in investment appraisal

There are two specific risks when making an investment decision if an investor relies on EBITDA margin data:

• EBITDA margin is not a good indicator of the performance of companies with expensive or borrowed equipment;
• EBITDA margins can mask the fact that some companies have high EBITDA but low net income and margins.

EBITDA margin measures a company's earnings before interest, taxes, and depreciation as a percentage of its total revenue. The EBITDA margin can be calculated as follows:

EBITDA margin = EBITDA/total revenue

For investors, the EBITDA margin is a good way to gauge the potential of a planned investment, as it provides insight into a company's performance without taking into account financial decisions, accounting decisions, and many tax conditions. EBITDA margins can also give an investor a deeper understanding than a company's profitability ratios. The EBITDA margin does not include non-operating effects of the company's activities such as depreciation, taxes and interest payments.

Although EBITDA is of some interest to investors, it has a number of disadvantages as the main argument in making a decision. For example, companies operating in industries that require a large amount of fixed assets, such as manufacturing, will not provide investors with accurate EBITDA margin performance characteristics. Fixed assets, usually purchased on credit, have interest payments that are not included in EBITDA and high depreciation, which is also not included in EBITDA. While EBITDA is a useful measure of performance, it does not take into account a company's net income, which can be very low for an investor and signal that an investment will be underperforming.

Therefore, EBITDA is useful for comparing the net profitability of different companies in terms of making decisions related to financing and accounting. But when using this indicator, investors need to take into account the presence of certain risks.

For the economic and financial assessment of the company, many coefficients and formulas have been developed that reflect its aspects. This diversity is explained by the fact that state internal principles and accounting systems, like those in companies, often differ greatly. Of the financial indicators, one of the most useful can be called EBITDA - a popular tool for economic analysis, which, among other things, serves to compare with competitors. The purpose of this publication is to provide readers with a methodology for calculating and interpreting EBITDA.

Profitability assessment using EBITDA

Earnings before Interest, Taxes, Depreciation and Amortization - this is how the abbreviation EBITDA stands for. The standard translation is "earnings before interest, taxes and depreciation."

Previously, this indicator was traditionally used to assess the company's ability to pay its debts, the benefits of investing in it, as well as the validity of M&A transactions with its participation.

Now, financial analysts often use EBITDA not only as an indicator of business performance, but also to compare a number of competing firms with different capital structures and tax systems. EBITDA reflects the direct result of the company's work, "cleaned" of interest payments, taxes or depreciation of fixed assets - this is the plus of the approach. But this is also its major drawback, because, comparing an enterprise with a large amount of dilapidated funds that need investments for renovation, and a company where fixed assets are new, with the help of EBITDA, an outside investor will not see the difference.

Moreover, this parameter allows the company to look much more profitable in the eyes of external investors, since it can seriously inflate its “profitability”. Therefore, despite the usefulness of the assessment, relying solely on EBITDA when making decisions is also not worth it.

Based on EBITDA, several more indicators can be calculated. One of them is profitability before taxes, interest and depreciation (in English - EBITDA margin). To calculate it, you need to make a fraction with EBITDA as the numerator and Sales revenue as the denominator.

Ebitda margin expresses the ratio of profit, “cleared” from expenses for taxes, interest, depreciation of fixed assets, to total revenue.

For a firm to be considered profitable, the Ebitda margin must exceed 0.12. However, this figure is subject to change, depending on the specifics of the industry and other variables (such as the general economic environment).

Calculating EBITDA from the balance sheet

EBITDA can be calculated both using the IFRS method (translated into Russian - IFRS, International Financial Reporting Standards) and US GAAP (US uniform accounting principles), and according to the method adopted in Russian accounting. To understand their pros and cons, you need to familiarize yourself with each in more detail.

According to the first method, EBITDA is calculated as the sum of net profit (NP), income tax (IT), extraordinary (not related to the main activities of the company) expenses (CR), interest paid (IP), depreciation (regularly transferring part of the cost of fixed assets on the cost of production, AO) minus income tax refunds (GNP), extraordinary income (similar to non-core activities, NH), interest received (appear when the firm itself issues loans, PP) and asset revaluation (RA). All together can be expressed by the equation:

EBITDA \u003d PE + NP + CR + UE + JSC - GNP - BH - PP - PA.

Such a calculation gives a more accurate figure, but if you only have RAS statements at your disposal, many terms from the formula will have to be recalculated manually. In this case, it is much more convenient to use the second method.

The data for finding EBITDA on the basis of RAS reporting is in Form No. 2 of the balance sheet (otherwise, the profit and loss statement). With their help, you can calculate the indicator as the sum of sales profit (line 2200 of the income statement), interest on loans (line 2330), tax deductions (lines 2410, 2421, 2450) and depreciation deductions (the same component, as used in the previous method). The amount of depreciation deductions, as a rule, are indicated in the annexes. Instead of profit from sales, you can take the difference between revenue, or sales volume (p. 2110), and production costs (p. 2120).

We get the following equation:

EBITDA \u003d B - C + P + N + JSC

If the IFRS calculation is more accurate, but more difficult to calculate, then in this case the situation is exactly the opposite: for the second method, it is easy to find the necessary data, it is faster to use, but less accurate.

Calculation of the ratio of debt and EBITDA

Another indicator derived from EBITDA is the Debt/EBITDA ratio, which illustrates the level of the company's debt burden, its ability to service loans, loans and pay off debts.

The ratio is a fraction, where the numerator is the sum of short-term and long-term liabilities (Debt), and the denominator is still EBITDA. If the debt burden is low, and the company is able to pay its debts, then the Debt / EBITDA ratio will be equal to or less than 3. If this indicator is more than 4-5, the company is probably not solvent and can hardly hope for additional investments or loans. In this case, company managers should think about ways to reduce the debt burden, since taking further loans will complicate an already difficult situation.

Sample

Now let's look at a sample calculation of EBITDA and the associated profit margin:

The figures show that the enterprise is highly profitable, and if it does not have assets that need to be replaced or repaired, then it is quite attractive to the investor.

If you are looking to attract money to your company from foreign investors, who usually deal with IFRS or US accounting principles, EBITDA will be especially useful to you, since it is used quite widely in international practice. Knowing the calculation methodology, you can now calculate and present this indicator.