Mergers & Inquisitions / Breaking Into Wall Street

EBITDAR: One Step Beyond Tony Soprano in Corporate Finance

The video introduces EBITDAR – earnings before interest, taxes, depreciation, amortization and rent – as a step beyond the more familiar EBITDA metric. After a brief nod to a mis‑used Sopranos clip, the presenter explains why adding back rental expense can be essential when comparing firms with different leasing structures or accounting standards. A core illustration contrasts two US‑GAAP companies: one that leases all assets (incurring $50 million operating lease expense) and another that owns assets (recording $30 million depreciation and $20 million interest). EBITDA shows a misleading 20% versus 25% margin, but EBITDAR equalizes both to a 25% margin by adding back rent. The tutorial also notes that under IFRS, lease accounting often mirrors depreciation, making EBITDAR nearly identical to EBITDA, as seen in LATAM Airlines’ filings. The presenter walks through an Excel model, showing how to compute EBITDAR, adjust enterprise value by adding operating lease liabilities, and recalculate valuation multiples. A real‑world case study uses China Oilfield Services, where a global peer set mixes US‑GAAP and IFRS firms, demonstrating that EBITDAR yields a more comparable multiple than EBITDA alone. The takeaway is clear: when analyzing lease‑intensive or cross‑border companies, analysts should adopt EBITDAR, ensure lease liabilities are reflected in the enterprise‑value numerator, and adjust credit ratios accordingly. This practice improves comparability and reduces distortion from differing lease accounting treatments.