EBITDAR is EBITDA plus rent expense

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent. It takes EBITDA — which you already know excludes interest, taxes, depreciation, and amortization — and adds back one more line item: the rent your company pays for its physical space.

The reason is practical. When you compare two companies in the same industry, one might own its building and the other might lease it. The owner deducts depreciation on the building; the lessee deducts rent. Both are real costs, but they look different on a profit-and-loss statement. EBITDAR strips out both so you can see operating performance on the same basis.

This matters most in industries where rent is a major expense and varies widely between competitors — retail chains, restaurants, hotels, and airlines are the most common examples. A hotel that owns its property and one that leases it might have identical rooms and customers, but their financial statements would look completely different without this adjustment.

Key Takeaways

  • EBITDAR adds rent back to EBITDA to create an apples-to-apples comparison between companies that own versus lease their space.
  • The formula is: Net Income + Interest + Taxes + Depreciation + Amortization + Rent = EBITDAR.
  • EBITDAR is most useful in retail, restaurant, hotel, and airline industries where rent is a large and variable operating cost.
  • Lenders and investors use EBITDAR to assess whether a company can cover its debt and operating expenses, regardless of whether it owns or leases its building.

When companies use EBITDAR instead of EBITDA

A company reports EBITDAR when rent is a structural part of its business model, not a one-time cost. Retailers like Target or Starbucks lease most of their locations, so rent is baked into their operating model. A software company with one leased office building would not typically report EBITDAR — rent is too small a piece of the picture.

Lenders ask for EBITDAR when they are deciding whether to lend to a company in a rent-heavy industry. A bank evaluating a restaurant chain needs to know whether the business can cover its debt payments after paying rent. If the chain's EBITDA looks strong but rent is enormous, the bank sees a different risk picture than EBITDA alone would show.

Private equity firms and investors also use EBITDAR to value companies before acquisition. If you are buying a hotel chain, you need to know what the business generates after all the costs that keep it running — including rent — are paid. EBITDAR gives you that number in a form you can compare across different properties and different companies.

How to calculate EBITDAR

Start with net income (the bottom line of the income statement). Add back interest paid on debt. Add back taxes. Add back depreciation and amortization (the non-cash charges). Then add back rent paid during the period.

The formula looks like this:

Net Income + Interest + Taxes + Depreciation + Amortization + Rent = EBITDAR

All of these numbers come from the company's financial statements. Net income, interest, and taxes are on the income statement. Depreciation and amortization are on the income statement or in the notes. Rent is usually listed as an operating expense on the income statement, though you may need to read the footnotes to find the total if rent is broken out by location or lease type.

Some companies report EBITDAR directly in their earnings reports or investor presentations. If they do not, you can calculate it yourself using the formula above. The result should be the same whether the company calculates it or you do.

EBITDAR versus EBITDA: what the difference means

EBITDA excludes rent; EBITDAR includes it. That single difference changes what the number tells you about the business.

A retail company with strong EBITDA but very high rent might actually have weak cash flow after rent is paid. EBITDAR would show you that. Conversely, a company with lower EBITDA but lower rent might have more cash left over. EBITDAR makes that comparison visible.

For industries where rent is small or variable, EBITDA is usually enough. For industries where rent is a fixed, large, and predictable cost — like restaurants or retail — EBITDAR gives a clearer picture of what the business actually generates. Neither number is "right" or "wrong"; they answer different questions.

Why lenders care about EBITDAR

A lender wants to know whether a company can pay back a loan. They look at cash flow — the money actually coming in and going out. EBITDAR is not cash flow, but it is a proxy for the cash a business generates before paying debt.

When a company leases its space, rent is a fixed obligation, like a loan payment. A bank lending to a restaurant needs to know whether the restaurant generates enough cash to cover both rent and the new loan. EBITDAR tells them that. If EBITDAR is weak, the restaurant may not be able to service the debt, even if EBITDA looks acceptable.

Lenders often set a minimum EBITDAR-to-debt ratio as a condition of the loan. A typical requirement might be that EBITDAR must be at least 1.25 times the annual debt service (interest plus principal payments). This ensures the business has a cushion to cover both rent and debt.

EBITDAR in different industries

Retail and restaurant companies report EBITDAR because they lease most of their locations and rent is their second-largest operating expense after labor. A Chipotle or a CVS has hundreds or thousands of leases, and rent is a known, fixed cost that varies little year to year.

Airlines use EBITDAR because they lease many of their aircraft and gates. Hotel chains use it because they may own some properties and lease others, and investors need to compare them on the same basis. Movie theater chains use it for similar reasons — rent is a major, predictable cost.

Software, manufacturing, and professional services companies rarely report EBITDAR because rent is a small part of their operating model. A software company's rent might be 2 percent of revenue; a restaurant's might be 8 to 12 percent. The larger the rent burden, the more useful EBITDAR becomes.

Frequently Asked Questions

Is EBITDAR the same as cash flow?

No. EBITDAR is an accounting measure that adds back non-cash charges like depreciation. Cash flow is the actual money moving in and out of the business. EBITDAR is useful for comparing companies, but it does not tell you how much cash a business actually has on hand or whether it can pay its bills this month.

Can a company have negative EBITDAR?

Yes. If a company loses money even before accounting for interest, taxes, depreciation, amortization, and rent, its EBITDAR will be negative. This usually signals serious operational problems and makes the company a poor lending risk.

Why not just use net income instead of EBITDAR?

Net income includes the effects of how a company is financed (interest), taxed, and how its assets are depreciated — all things that vary between companies for reasons unrelated to operations. EBITDAR strips those out so you can see how well the core business is performing, independent of capital structure or accounting choices.

Do I need to know EBITDAR to understand a company's financial health?

For most investors and business owners, EBITDA is sufficient. EBITDAR is mainly used by lenders, private equity firms, and analysts in rent-heavy industries. If you are evaluating a restaurant, hotel, or retail company, EBITDAR gives you a clearer picture than EBITDA alone.