EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization and Rent. It is a profitability measure commonly used in evaluating the relative performance of a firm or group of firms. Generally, EBITDAR is calculated by first taking net income and then removing items related to interest, taxes, depreciation, amortization, and rent.

In essence, EBITDAR offers a better look at the financial performances of a company, and can be used as a way of conducting more effective comparisons between two different firms. EBITDAR is favored in highly competitive industries like the restaurant, retail, and casino industries, because it seeks to remove costs that can be highly variable and non-recurring. Such expenses are often not directly related to the core operations of the business, and so their removal from the calculations offers a truer reflection of a company’s performance.

EBITDAR does have a downside in that it can be argued that certain controllable costs are “unjustly removed” from the equation, which can result in company management not being held accountable for spending. However, most agree the benefit of being able to provide a more accurate image of a business’ performance outweighs the risks. The removal of one-time, capital expenditures can help to ensure both businesses and investors are looking at the same numbers when making decisions about the future.

In conclusion, EBITDAR is an essential tool for businesses looking to gauge the financial performance of their business separate from taxes, rent, restructuring costs, and other non-cash accounting expenses. It allows for easier comparison between companies in the same sector and is especially useful for those in the restaurant, retail, and casino industries, who normally incur high non-recurring costs. Investors who are looking to invest in companies should be familiar with EBITDAR, as it can provide a truer image of a company’s performance.