EBIT vs EBITDA for Retail/cap-intensive companies?
I'm reading a lot of conflicting info on this. The M&I guide says you should use EV/EBIT multiple for companies in industries where D&A is large to account for capex. I would assume Consumer & Retail falls into this asset-heavy category due to manufacturing properties, retail stores, etc. So I would think to use EBIT.
But why then is EV/EBITDA and EV/EBITDAR used more for Consumer & Retail companies? If rent is a big part of these companies, why exclude it in EBITDAR? And why exclude D&A in EBITDA if this industry is asset-heavy? This goes against the logic of what was mentioned in the guides.
You exclude rent in EBITDAR because it plays a large part in these consumer companies.
You want to compare apples to apples so if you compare one company that owns its retail properties vs one that rents its retail properties, assuming same sales and margins, the company that owns its properties will have a higher EBITDA. But if you exclude rent then they will have the same EBITDAR and thus have the same multiple.
Thanks for the response, but i was wondering why the guides say to use EBIT for asset-heavy industries like retail but retail companies use EV/EBITDA or EV/EBITDAR. I wasn't really asking why rent is excluded.
Using EBITDAR allows for easier comparison of one firm to another by minimizing unique variables that don't relate directly to operations
Okay thanks — so about what's in the M&I guides, does that just not apply to retail? It was very general like "use EBIT for capital-intensive" which I thought retail falls under
When I think of capital-intensive companies I usually think of automobile, O&G, telecoms, and transportation.
For retail, I wouldn't necessarily call it capital intensive since many retailers I know of don't own factories like polo ralph lauren, Lulu and UNIQLO. They purchase their product from suppliers (who would be considered capital intensive since they are the ones who need to purchase and maintain those factories).
Just my thoughts
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