when companies purchase an asset such as a piece of machinery it can be quite expensive the cost of the asset can be used to reduce a company s taxable income in other words net income is reduced by the cost of the asset for tax purposes thus lowering the taxes paid on the company s profit 
instead of reporting the total cost of the asset in the year that it was purchased companies are allowed to spread the cost of that asset each year over the estimated useful life of the asset this process of expensing the asset over the years is called depreciation and is helpful since it allows companies to earn profit from the asset while expensing only a portion of it each year amortization is the same practice as depreciation except that amortization is used for intangible assets such as a patent while depreciation is used for tangible assets such as machinery when calculating oibda depreciation and amortization are added back into operating income since they are typically subtracted from gross profit to arrive at operating income interest and taxes are expense line items found on the income statement many companies that purchase fixed assets such as a building must borrow the money to finance the purchase as a result the company must pay an interest expense each accounting period which represents the interest rate applied to the debt by the lender taxes are also listed as a separate line item on the income statement showing the tax expense that the company paid based on the applicable tax rate and profit generated interest and taxes are usually listed after operating income meaning they are not included in operating expenses as a result these two expenses would not normally be included in the oibda calculation however some companies report interest and tax expenses higher on the income statement and are reflected in operating income and therefore must be added back into operating income to arrive at oibda formula and calculation of oibdathe formula for calculating operating income before depreciation and amortization oibda is shown below oibda oi d a tax interest where oi operating income d depreciation a amoritization begin aligned text oibda text oi text d text a text tax text interest textbf where text oi text operating income text d text depreciation text a text amoritization end aligned oibda oi d a tax interestwhere oi operating incomed depreciationa amoritization please note that some companies may embed depreciation and amortization expense within their cogs or selling general and administrative expense sg a in other words there may not be a separate line item for depreciation and amortization in this case the company s cash flow statement must be used to find the line item when calculating cash flow companies must add non cash expenses such as d a to net income to arrive at the cash flow for the period oibda vs ebitdaoibda and ebitda or earnings before interest taxes depreciation and amortization are similar but use different income numbers as their starting points the oibda calculation begins with operating income while ebitda begins with net income which represents the profit for the accounting period unlike ebitda oibda does not incorporate non operating income or one time charges one time items ultimately add or deduct from a company s profit or earnings but are not included in oibda this can be seen as an advantage for comparison purposes since non operating income usually doesn t reoccur year after year its separation from operating income ensures that the calculation only reflects the income earned from core operations example of oibdabelow is the income statement for walmart inc for the company s fiscal year ending jan 31 2021 via the company s 10 k report issued on march 19 2021 1as a result we must refer to walmart s cash flow statement for the same period which is shown below walmart s oibda can also be calculated for 2020 and 2019 to compare with 2021 s oibda to get a better sense of whether 2021 was a good year or not walmart s 2021 oibda of 33 70 billion was more than 2 billion higher than 2020 however 2021 s oibda was approximately 1 billion higher than 2019 we can see that walmart is increasing its income from its core business operations since oibda in 2021 was much better than 2020 and also beat 2019 s oibda however 2021 s oibda was nearly 1 billion higher than 2019 in part due to a higher depreciation expense for 2021 of 11 152 billion versus 10 678 perhaps the company purchased new assets in 2021 which led to a higher depreciation expense 