OIBDA

What is OIBDA?

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

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 itemsTypes Of Non-recurring ItemsNon-recurring items are income statement entries that are unusual and unexpected during regular business operations; examples include profits or losses from sale of asset, impairment costs, restructuring costs, and losses in lawsuits, and inventory write-off.read more
    – Charge for Venezuela accounting change is a non-recurring item.
    Other expenseOther ExpenseOther expenses comprise all the non-operating costs incurred for the supporting business operations. Such payments like rent, insurance and taxes have no direct connection with the mainstream business activities.read more 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 assetsAmortization Of Intangible AssetsAmortization of Intangible Assets refers to the method by which the cost of the company's various intangible assets (such as trademarks, goodwill, and patents) is expensed over a specific time period. This time frame is typically the expected life of the asset.read more 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 + $4 = $3,841 million
    Operating Profit,excluding non recurring charges (2015) = $2,789 + $1,113 = $3,902 million

  4. Find Depreciation and Amortization

    Colgate Du0026A

    source: Colgate SEC Filings

    From the cash flow statementsCash Flow StatementsStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more, 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) = $3,748 + $475 = $4223 million
    OIBDA (2016) = $3,841 + $443 = $4223 million
    OIBDA (2015) = $3,902 + $449 = $4,351 million

OIBDA vs EBITDA – Colgate Example

Though OIBDA vs. EBITDA are similar in many ways, during the calculation, 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. 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 in nature, and it is absolutely normal to not include those in financial calculations done by Financial Analysts. So OIBDA is more accurate than EBITDA.

Operating Income before Depreciation and Amortization Explained in Detail

  • Operating Income before Depreciation and Amortization is gaining popularity as companies are not very much interested in using earnings before interest, taxes, depreciation, and amortization (EBITDA).
  • Operating Income before Depreciation and Amortization does not take into account the non-operating income, which is an advantage because non-operating income usually does not happen year after year, and its marking clearly makes sure that all the income reflects only the income from regular operations.
  • Since all valuation methods start with DCF, Operating Income before Depreciation and Amortization is an important part of the detailed financial analysis. A close eye is kept on the changes and patterns in this metric, as that can be a signal of changes in core operations.
  • The depreciation and amortization are added to the operating income since depreciation and amortization are typically included as operating expenses.
  • Operating Income before Depreciation and Amortization measures income exclusive of the effects of a company’s capital spending choices. It also does not show the cash used for debt services, distributions, or other operating expenses that are non-core. With the help of Operating Income before Depreciation and Amortization, the investors get a better understanding of the efficiency of a company’s operations.

Advantages of OIBDA

Disadvantages of OIBDA

  • Calculations are quite complex.
  • Since it is a non-GAAP method, it means non- standard earnings calculations are done, which may get creative at times, and distinctions between expenses can get blurred like the distinction between extraordinary expense and recurring expense.
  • 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.

Video on OIBDA

 

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 restructuring. This measure can be used effectively to calculate a company’s total enterprise value.  If a company wants to please its stockholders, then the higher value of Operating Income before Depreciation and Amortization is very important.

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

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