OIBDA

Updated on April 4, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is OIBDA?

OIBDA is operating income before depreciation and amortization. It is calculated by adding depreciation and amortization to operating income (excluding non-recurring items). Companies in their fillings do not generally report it as it is a non-GAAP measure.

Key Takeaways

  • OIBDA, or Operating Income Before Depreciation and Amortization, is a non-GAAP measure used to calculate operating income by adding depreciation and amortization back to it, excluding non-recurring items. Companies often don’t report it in their financial filings.
  • OIBDA is a substitute for cash a company generates, irrespective of its capital structure and taxes. It omits non-operating expenses like tax deductions and long-term capital investments in equipment and intangible assets, such as trademarks.
  • A higher OIBDA is significant for a company seeking to impress its stockholders, as it indicates strong operating performance without the impact of certain non-operating factors.

Calculate OIBDA – Colgate Example

Let us now calculate the OIBDA of Colgate. Below is the snapshot of Colgate’s Income Statement –

OIBDA example - Colgate

source: Colgate SEC Filings

Below are the steps for calculation of OIBDA –

  1. Find the Operating Profit as per the Income Statement

    Operating Profit as per the Income Statement is as per below
    Operating Profit (2017) = $3,589 million
    Operating Profit (2016) = $3,837 million
    Operating Profit (2015) = $2,789 million

  2. Find the Non-Recurring Charges included in the Income Statement


    The income statement of Colgate contains two types of non-recurring items
    – Charge for Venezuela accounting change is a non-recurring item.
    Other expense also contains some of the non-recurring charges

    OIBDA example 2- Colgate
    source: Colgate SEC Filings

    In the above table, only the amortization of intangible assets is a recurring charge. All others included in the table are non-recurring in nature.

    Non Recurring Charges (2017) = $169 – $11 + $1 = $159 million
    Non Recurring Charges (2016) = $105 – $97 + $17 – $10 – $11 = $4 million
    Non Recurring Charges (2015) = $1084 (venezuela charges) + $170 + $14 + $34 – $187 – $8 + $6 = $1113 million

  3. Find Operating Profit (excluding the non recurring charges)

    Operating Profit, excluding non recurring charges (2017) = $3,589 + $159 = $3,748 million
    Operating Profit, excluding non recurring charges(2016) = $3,837 +u00a0$4 = $3,841 million
    Operating Profit,excluding non recurring charges (2015) = $2,789 + $1,113 = $3,902 million

  4. Find Depreciation and Amortization

    OIBDA example 3- Colgate

    source: Colgate SEC Filings

    From the cash flow statements, we have the following
    Depreciation and Amortization (2017) = $475 million
    Depreciation and Amortization (2016) = $443 million
    Depreciation and Amortization (2016) = $449 million

  5. Calculate OIBDA using the Formula


    OIBDA Formula = Operating Income (net of non recurring items) + Depreciation + Amortization
    OIBDA (2017) =u00a0$3,748 +u00a0$475 = $4223 million
    OIBDA (2016) = $3,841 + $443 = $4223 million
    OIBDA (2015) = $3,902 + $449 = $4,351 million

Video on OIBDA

 

OIBDA vs EBITDA – Colgate Example

Though OIBDA vs. EBITDA is similar in many ways, they will differ by other non-operating expensesOther Non-operating ExpensesNon operating expenses are those payments which have no relation with the principal business activities. These are the non-recurring items that appear in the company's income statement, along with the regular business expenses.read more.during the calculation. In the absence of non-operating and non-financial income and expenses, both OIBDA vs. EBITDA will be the same.

Please see below the calculation of EBITDA of Colgate for 2015, 2016, and 2017.

example

Now see the calculation of OIBDA that excludes all the nonrecurring items.

OIBDA vs EBITDA 2

In most cases, non-operating income and expenses are non-recurring, and it is normal not to include those in financial calculations done by Financial Analysts. So OIBDA is more accurate than EBITDAEBITDAEBITDA refers to earnings of the business before deducting interest expense, tax expense, depreciation and amortization expenses, and is used to see the actual business earnings and performance-based only from the core operations of the business, as well as to compare the business's performance with that of its competitors.read more.

Operating Income before Depreciation and Amortization Explained in Detail

Advantages of OIBDA

Disadvantages of OIBDA

  • Calculations are quite complex.
  • Since it is a non-GAAP method, non-standard earnings calculations are done, which may get creative at times. Distinctions between expenses can get blurred, like extraordinary and recurring expenses.
  • Since Operating Income before Depreciation and Amortization is a non-GAAP method, there are no specific standards regarding what to include in its calculation. So multiple earnings calculation methods should be used instead.

Conclusion

Operating Income before Depreciation and Amortization is an important measure to gauge cash generated by a firm irrespective of taxes and capital structure. That’s why it can be used as a tool to design mergers and acquisitions and restructuringRestructuringRestructuring is defined as actions an organization takes when facing difficulties due to wrong management decisions or changes in demographic conditions. Therefore, tries to align its business with the current profitable trend by a) restructuring its finances by debt issuance/closures, issuance of new equities, selling assets, or b) organizational restructuring, which includes shifting locations, layoffs, etc.read more. This measure can be used effectively to calculate a company’s total enterprise valueTotal Enterprise ValueEnterprise value (EV) is the corporate valuation of a company, determined by using market capitalization and total debt.read more.  If a company wants to please its stockholders, then the higher value of Operating Income before Depreciation and Amortization is very important.

Frequently Asked Questions (FAQs)

1. What is the relevance of OIBDA? 

OIBDA, which stands for Operating Income Before Depreciation and Amortization, is relevant because it provides a clearer view of a company’s operating performance by excluding non-cash expenses like depreciation and amortization. It helps investors and analysts assess a company’s core operating profitability, allowing for better comparisons between businesses regardless of their accounting methods or capital structures.

2. What are the applications of OIBDA?

OIBDA is commonly used in:
Investment Analysis
Industry Comparisons
Mergers and Acquisitions

3. What is OIBDA vs. net income?

OIBDA and net income differ in their scope and the expenses they include. OIBDA represents Operating Income Before Depreciation and Amortization, excluding non-cash expenses, such as depreciation and amortization, and other non-operating items like interest and taxes. It focuses solely on a company’s core operating performance. Net income, on the other hand, represents the bottom-line profit after accounting for all expenses, including non-operating items like interest, taxes, and non-cash expenses. 

This has been a guide to OIBDA, its formula, and its calculation. Here we discuss the Colgate OIBDA example and highlight the differences between OBIDA and EBITDA. You may learn more about ratio analysis from the following articles –

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