# 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.

• Operating Income before Depreciation and Amortization is used by the companies to give a clearer picture of the profitability in continuing business activities without taking into consideration the effects of capitalization and tax structure.
• Operating Income before Depreciation and Amortization acts as the proxy for cash generated irrespective of its capital structure and taxes and excludes non-operating expenses like tax deductions, long-term in equipment, and intangible assets like the trademark.

### Calculate OIBDA – Colgate Example

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

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
– Charge for Venezuela accounting change is a non-recurring item.
also contains some of the non-recurring charges source: Colgate SEC Filings

In the above table, only the 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 source: Colgate SEC Filings

From the , 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 . 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.

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

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 .

### 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 , 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 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.

• Operating Income before Depreciation and Amortization figures are generally higher and, in some cases, significantly higher than the earnings figure calculated by any other .
• Operating Income before and Amortization takes into account all the operating expenses that are part of daily operations, as the salary of employees, raw material costs, employee benefits, and pension contributions, and shipping fees. The OIBDA calculation disregards non-operating expenses like tax deductions, long-term capital investments in equipment, and like the trademark.
• Operating Income before Depreciation and Amortization gives a high earnings figure, which is desirable for and investors.
• By reporting earnings with Operating Income before Depreciation and Amortization for the business entity does not have to take into consideration non-operating expenditures like a long-term investment in equipment, tax deductions, and investments in intangible assets.

• 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.

### 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 .  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 –