EBITDAR stands for earnings before interest, tax, depreciation, amortisation and rent. It takes the familiar EBITDA figure and adds back rent or lease expense to show operating performance before the effect of how premises and equipment are financed.
It is a non‑IFRS, non‑GAAP measure. Companies, lenders and data providers define it in slightly different ways, so the exact calculation you see in a report or covenant may not match another source.
What exactly goes into EBITDAR?
The simplest way to think about it is:
- EBITDAR = EBITDA + rent expense.
EBITDA itself strips out interest, tax, depreciation and amortisation from profit. EBITDAR goes one step further by also removing rent paid for property and equipment under operating leases. In sectors where leasing is a substitute for owning assets, that adjustment can make comparisons fairer.
Depending on the source, you might also see:
- EBITDAR computed from operating profit by adding back depreciation, amortisation and rent.
- EBITDAR adjusted for “exceptional” or “non‑recurring” items. The rules for what counts as exceptional vary by company.
- EBITDARM, a variant used mainly in healthcare, which adds back rent and management fees.
Be careful with the “R”. In some documents it means rent, in others restructuring costs. Read the footnotes to see what has been added back.
Why strip out rent in the first place?
Two retailers can run the same number of shops with similar sales. One owns its stores. The other leases them. Their reported profits will look different because the leaseholder records a rent expense each period, while the owner records depreciation and possibly interest on a mortgage. Neither approach is inherently better. They are just different financing choices.
By adding back rent, EBITDAR aims to neutralise those choices so the comparison focuses on the underlying economics of the trading locations and operations. That is why you often see EBITDAR used in:
- Retail, hospitality and restaurants where site rents are a major cost and leasing is common.
- Airlines where aircraft can be leased or owned, changing the mix of rent versus depreciation and interest.
- Credit analysis and lending covenants where lenders look at EBITDAR relative to fixed charges like rent to judge staying power.
Where you will see EBITDAR used in practice
Analysts and lenders use EBITDAR in a few recurring ways:
- Valuation multiples. Enterprise value divided by EBITDAR (EV/EBITDAR) can be used to compare businesses that finance sites or equipment differently. It is not universal, but it shows up in lease‑heavy sectors.
- Coverage ratios. A common check is rent coverage, defined as EBITDAR divided by cash rent. Higher coverage suggests more headroom to meet lease obligations in a downturn.
- Leverage tests in covenants. Some loan agreements cap net debt to EBITDAR instead of to EBITDA to avoid penalising a business simply for using leases.
Because definitions vary by lender and by company, the exact inputs to those ratios can differ. Some use total cash lease payments. Others adjust for contingent rent or sublease income. Always check the definition attached to the ratio you are using.
A short worked example
Imagine two similar convenience chains, each with £1 billion of revenue and a 10 percent EBITDA margin before rent. Chain A leases most stores and records £60 million of rent. Chain B owns most stores and has only £10 million of rent.
- Chain A: EBITDA £100m. Rent £60m. EBITDAR £160m.
- Chain B: EBITDA £100m. Rent £10m. EBITDAR £110m.
On EBITDA alone the two chains look identical. Yet one has much higher ongoing rent obligations. A lender might consider rent coverage as well:
- Chain A rent coverage = £160m ÷ £60m = 2.7x.
- Chain B rent coverage = £110m ÷ £10m = 11.0x.
The coverage ratio highlights that Chain B has far more cushion from operations to meet its lease costs. If you were comparing valuations, you might prefer EV/EBITDAR rather than EV/EBITDA so that differences in lease versus own do not cloud the picture. The multiple would still need to be interpreted alongside the quality and length of leases, capital needs of owned sites and other fundamentals.
Lease accounting changed. Does EBITDAR still help?
Under modern lease accounting standards, many operating leases move onto the balance sheet. What was previously a single rent expense is split between depreciation of a right‑of‑use asset and interest on a lease liability. That shift pushes up EBITDA for lessees because the interest component sits below EBITDA and the depreciation is already added back in EBITDA calculations.
These changes make apples‑to‑apples comparisons trickier across time and across companies that disclose differently. In response, you will see several approaches in the wild:
- Some companies and data providers still publish a rent figure, often based on cash lease payments, which they add to EBITDA to get EBITDAR.
- Some lenders define EBITDAR using a pre‑standard basis to preserve historic covenant comparability.
- Others rely on EBITDA and show separate lease metrics rather than using EBITDAR at all.
The takeaway is that EBITDAR is still used, but the inputs and labels can vary a lot. Always read the footnotes to see whether “rent” is an accounting expense from the income statement, a cash lease payment, or something else.
Limitations and common traps
- Rent is a real cash outflow. Adding it back can make a business look stronger than it is if you forget that leases still have to be paid. EBITDAR is not cash flow.
- Definition drift. Two EBITDAR figures may not be comparable if one adds back cash rent and the other uses accounting rent, or if one excludes certain one‑offs and the other does not.
- Ignores capital intensity. Owning assets pushes down rent but raises capital needs for maintenance and upgrades. EBITDAR alone will not capture these future cash demands.
- Sector bias. In industries without meaningful leases, EBITDAR rarely adds insight over EBITDA.
- Management adjustments. Because it is non‑standard, EBITDAR can be shaped by the presenter. Cross‑check against audited statements and reconcile to reported operating profit where possible.
How to calculate EBITDAR from a published income statement
If a company discloses rent separately, you can build EBITDAR with a few steps:
- Start with operating profit (EBIT).
- Add depreciation and amortisation to get EBITDA.
- Add rent or lease expense to reach EBITDAR.
If rent is not shown on the face of the income statement, look in the notes for lease expenses or cash lease payments. Under newer standards those disclosures often sit in the leases note. If you are using third‑party data, confirm how that source defines and sources rent before you rely on the number for ratios or valuation.
Used carefully, EBITDAR can sharpen comparisons for lease‑heavy businesses and make covenant tests more meaningful. Used carelessly, it can hide the weight of fixed commitments. Treat it as one tool among many rather than a shortcut to the whole story.