What is ‘EBITDARM’
A financial performance measure that stands for earnings before interest, taxes, depreciation, amortization, rent and management fees. EBITDARM is used in comparison to more common measures such as EBITDA when a company’s rent and management fees represent a larger-than-normal percentage of operating costs.
EBITDARM is not a measure in accordance with generally accepted accounting principles (GAAP), but is instead used for internal analysis and for presentation to investors and creditors. It is also reviewed by credit rating agencies when assessing a company’s overall debt servicing ability and credit rating, which is an important factor, as many of the companies who present this measure carry high debt loads.
EBITDARM is most likely to be found in the statements of a healthcare company, such as a hospital or nursing facility operator. Industries such as these often lease the spaces they use, so rent fees can become a major operating cost. EBITDARM may be measured against rent fees to see how effective capital allocation decisions are within the company, and to review its ability to service debt.
Measures like EBITDARM are most informative to investors if they are examined in conjunction with net earnings and more refined non-GAAP measures like EBITDA and EBIT.
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