EBITDAR: A Hotelier Guide to Understanding Profitability

When you’re comparing companies across different industries, traditional financial metrics don’t always tell the full story. This is especially true for businesses that face hefty rent costs or frequent restructuring expenses — factors that can really skew how we see their operational performance. That’s where EBITDAR comes in. It’s a handy financial metric that offers a clearer picture of a company’s core operations.

Whether you’re looking at hotel chains, airlines, or companies within the same sector, getting a solid grasp on EBITDAR can give you the edge you need in financial analysis. This guide will walk you through everything — from the basics of how to calculate EBITDAR to the more advanced ways it can be used.

What Exactly is EBITDAR?

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent or Restructuring costs. It’s a non-GAAP metric designed to show a company’s core operational performance by setting aside expenses that can vary widely between businesses, even in the same industry.

Unlike the usual numbers you see on a company’s income statement, EBITDAR excludes rent costs and restructuring expenses — things that don’t always reflect how efficiently a business is running day to day. This makes it especially useful when you’re comparing companies with different capital structures or ownership setups.

EBITDAR is particularly popular in rent-heavy industries like hospitality, airlines, and retail. Since rent expenses can vary so much, removing them helps investors and analysts compare companies on a more even footing, regardless of whether they own or lease their assets.

For example, if you’re comparing two hotel chains, one that owns its properties and another that leases them, traditional metrics might make the property owner look more profitable just because of how the costs are recorded. EBITDAR cuts through that by zeroing in on operational performance, not financing decisions.

How Do You Calculate EBITDAR?

Knowing how to calculate EBITDAR is key for meaningful financial analysis. There are three main ways to get there, and they all lead to the same number if done right.

The Straightforward Way

Start with net income from the income statement and add back these costs:

EBITDAR = Net Income + Interest + Taxes + Depreciation + Amortization + Rent/Restructuring Costs

This method walks you up from the bottom line to the operational performance by adding back each excluded cost.

Using EBITDA

If you already know EBITDA, just tack on rent or restructuring costs:

EBITDAR = EBITDA + Rent/Restructuring Costs

This is handy since EBITDA figures are often readily available in reports.

Starting from Operating Income

You can also begin with EBIT (earnings before interest and taxes) and add back depreciation, amortization, and rent or restructuring costs:

EBITDAR = EBIT + Depreciation + Amortization + Rent/Restructuring Costs

Breaking Down the Parts

Each piece of the formula has a role:

• Earnings: Net income — the company’s profit after all expenses.
• Interest: The cost of borrowing money, added back to focus on operations rather than financing.
• Taxes: Tax expenses are excluded since they vary by location and don’t show operational efficiency.
• Depreciation: A non-cash expense reflecting the allocated cost of tangible assets over time.
• Amortization: Like depreciation, but for intangible assets such as patents or goodwill.
• Rent/Restructuring: These are variable and often significant costs that can distort comparisons if included.

How Does EBITDAR Stack Up Against Other Metrics?

Let’s put EBITDAR side by side with other common financial metrics to see when it’s best to use each:

EBITDAR vs EBITDA

EBITDA removes interest, taxes, depreciation, and amortization, while EBITDAR goes a step further by also excluding rent and restructuring costs. This makes EBITDAR especially useful when you’re looking at companies with high lease expenses or those undergoing significant restructuring.

Most companies stick with EBITDA unless rent costs make comparisons between similar businesses misleading.

EBITDAR vs EBIT

EBIT includes depreciation, amortization, rent, and restructuring costs. EBITDAR removes those to focus on cash-generating operational activities.

While EBIT aligns with accounting principles and shows accounting profit, EBITDAR gives you a sharper look at the company’s core operations, independent of accounting choices or financing.

Who Uses EBITDAR?

Some industries find EBITDAR especially valuable because of their unique cost structures.

Hotels

The hotel industry is a classic example. Some hotels own their buildings, others lease them, and still others operate under franchise agreements. This leads to very different expenses on the income statement.

Hotels that lease properties show rental costs as operating expenses, while owners show depreciation. Without adjusting for this, comparing their financial performance is tricky.

EBITDAR helps by removing rent costs, letting analysts focus on operational efficiency regardless of ownership.

Imagine two hotels in the same city with similar revenues and operations. One owns its property, the other leases. Traditional metrics might make the owner look better off, but EBITDAR shows their actual operational performance is on par.

Airlines

Airlines also benefit from EBITDAR analysis. Some own their aircraft, others lease them, which creates big differences in operating expenses.

Leases show up as rental costs, impacting profitability metrics. EBITDAR removes these to let you compare airlines on how well they run their operations, not how they finance their fleets.

For example, Southwest Airlines has traditionally owned much of its fleet, while Spirit Airlines leases a lot of theirs. EBITDAR lets analysts compare their operational efficiency without the noise of financing differences.

When Should You Use EBITDAR?

EBITDAR shines in certain situations:

• After Restructuring: When a company has recently reorganized and has one-time restructuring costs, EBITDAR excludes these to show ongoing performance.
• Variable Rent Costs: Businesses with different rent expenses across locations, like retail chains, can be compared more fairly using EBITDAR.
• Industry Comparisons: When companies in the same sector have different asset ownership models, EBITDAR levels the playing field.
• Operational Efficiency: It helps focus on how well the core business is running, independent of financing choices.
• One-Time Costs: Excluding one-time restructuring costs gives a clearer picture of sustainable earnings.

EBITDAR Calculation in Action

Let’s look at a simple example with Company ABC’s 2024 numbers:

• Revenue: $5,000,000
• Net Income: $750,000
• Interest Expenses: $150,000
• Tax Expenses: $200,000
• Depreciation: $100,000
• Amortization: $50,000
• Rent Expenses: $300,000

Step-by-step:

Start with net income: $750,000
Add interest: +$150,000
Add taxes: +$200,000
Add depreciation: +$100,000
Add amortization: +$50,000
Add rent: +$300,000

Total EBITDAR = $1,550,000

To see how operationally efficient the company is, calculate the EBITDAR margin:

EBITDAR Margin = EBITDAR ÷ Revenue = $1,550,000 ÷ $5,000,000 = 31%

That means for every dollar of revenue, Company ABC earns 31 cents from its core operations before financing, taxes, and asset costs.

What’s a Good EBITDAR Margin?

EBITDAR margins often line up with EBITDA benchmarks but tend to be a bit higher since rent and restructuring costs are excluded.

• Margins above 10% are generally strong.
• Tech companies might see 20% or more due to lower operating costs.
• Service businesses usually have higher margins than manufacturing.
• Hotels typically range from 25-35%, depending on location and market.
• Airlines often fall between 10-20%, influenced by fuel and operational efficiency.
• Retailers aim for 15-25%, varying by segment.

These benchmarks help you gauge if a company is performing well within its industry.

Why Use EBITDAR? The Benefits

EBITDAR offers several perks:

• Better Comparisons: Removes rent variability so you can fairly compare companies with different ownership models.
• Focus on Operations: Excludes one-time restructuring costs for a clearer view of ongoing performance.
• Performance Insights: Highlights controllable costs and operational efficiency.
• Lending Perspective: Banks use it to assess cash flow available for debt payments.
• Strategic Decisions: Helps management focus on operational improvements independent of financing.

Private equity firms and acquirers also rely on EBITDAR to spot operational improvements and true earning potential beyond current capital structures.

Keep in Mind: Limitations of EBITDAR

While useful, EBITDAR isn’t perfect:

• Non-GAAP Flexibility: Because it’s not standardized, companies might calculate it differently or adjust it to look better.
• Ignores Real Costs: Rent and restructuring expenses are real cash outflows, even if excluded here, so EBITDAR can overstate financial health.
• Standardization Issues: Without consistent methods, comparing EBITDAR across companies requires care.
• Recurring Costs: Sometimes recurring expenses get labeled as one-time restructuring costs, which can mislead.

Don’t Use EBITDAR as a Cash Flow Proxy

Remember, EBITDAR excludes real cash expenses like rent and interest, so it shouldn’t be mistaken for actual cash flow. Always pair EBITDAR with balance sheet and cash flow analysis to get the full financial picture.

How to Boost Your EBITDAR

Want to improve EBITDAR? Here are some smart moves:

• Increase Revenue: Optimize pricing, expand markets, and focus on high-margin customers.
• Cut Operating Costs: Manage labor, admin, and supply expenses carefully without sacrificing quality.
• Negotiate Leases: When leases come up, seek better terms or consider relocating.
• Save Energy: Use efficiency programs to lower utility bills.
• Streamline Processes: Automate and optimize inventory and supply chains.
• Focus on Core: Invest in your most profitable operations, and cut back on underperforming areas.

EBITDAR in the Bigger Financial Picture

Analysts and investors use EBITDAR in many ways:

• Valuation: EV/EBITDAR multiples are common in hospitality and airlines, helping compare companies fairly.
• Credit Assessments: Lenders look at EBITDAR to understand debt repayment capacity.
• Investment Analysis: Private equity uses it to find operational upside.
• Performance Tracking: Companies tie management incentives to EBITDAR goals.
• Credit Ratings: Rating agencies consider EBITDAR when evaluating risk.
• Benchmarking: Comparing peers on EBITDAR reveals who’s leading and who needs work.

Mastering EBITDAR gives you a powerful tool to see through the noise of different business models and capital structures. Use it wisely alongside other financial metrics to make smarter investment and management decisions.

When used properly, EBITDAR helps you understand the real operational health of complex, asset-heavy businesses — whether you’re investing, benchmarking, or strategizing for growth.