Operating Income Before Depreciation and Amortization (OIBDA)
Candlefocus EditorThe calculation for OIBDA is fairly straightforward. Operating income is equal to a company’s sales revenue minus operating expenses, such as materials, labor, research and development, and selling, general and administrative expense. From this total, two additional items—depreciation and amortization—are subtracted.
Depreciation and amortization offer investors insight into a company’s long-term capital expenses. Depreciation is the expense of using tangible assets like equipment. A company must depreciate these assets over their useful life. Amortization refers to the allocation of the cost of an intangible asset, such as trademarks and patents, over the assets’ estimated life span. These two costs have an impact on a company’s income statements but are non-cash expenses, meaning they include no money outflow.
OIBDA allows investors and analysts to examine a company’s operations without the non-cash expenses incurred by depreciation and amortization. Additionally, it excludes the effects of capital spending on fixed assets and income taxes.
By assessing a company’s OIBDA, investors are able to gain broader insight into the performance of the business. The trend of the OIBDA number can be compared across multiple periods. This analysis enables investors to assess the management of production and operating expenses, as well as how well the business is generating revenue.
While OIBDA is an important financial metric for examining a company’s business operations. It should not be used in isolation as it does not provide a full picture of a company’s overall financial health. By analyzing a company’s OIBDA in conjunction with other financial metrics, investors can gain a comprehensive understanding of a company’s financial standing.