CFM96410 - Interest restriction: group-EBITDA: definition of group-EBITDA

TIOPA/S416

Group-EBITDA is the denominator used in the calculation of the group ratio percentage as part of the group ratio method. It is based on the group’s earnings for the period before interest, taxation, depreciation and amortisation, as shown in the consolidated group accounts for the parent entity of the worldwide group. It is important to note, however, there is a particular statutory definition of group-EBITDA, so it is not likely that this will exactly align to the figure calculated by businesses for their own reporting purposes.

In essence, group-EBITDA is calculated as follows:

  • The profit before tax, (PBT) plus
  • the net group-interest expense (I), plus
  • the depreciation and amortisation adjustment (DA).

These amounts are all based on the amounts recognised as items of profit or loss in the financial statements of the worldwide group for the period of account. Note that any of these amounts may be negative.

As well as adjusting for interest, tax, depreciation and amortisation, certain adjustments are to be made to limit the impact of volatility and to better align the computation of group-EBITDA with that of tax-EBITDA. Certain elections may be made, designed to enable yet closer alignment between group-EBITDA and tax-EBITDA, and to deal with more complex group structures.

Profit before tax

The group’s profit before tax is the total of the amounts recognised in the group financial statements for the period as items of profit or loss excluding any amounts of tax expense (or income).

Note that this may include amounts arising from discontinued operations that are presented separately (for instance, in accordance with IFRS 5.33 or FRS 102.5.7E) unless, exceptionally, to the extent that those discontinued activities are carried on by non-consolidated subsidiaries (CFM95350).

Derivatives

In calculating the group-EBITDA the fair value movements on derivatives that have a hedging function are ‘disregarded’, see CFM96500.

Research and Development Expenditure Credits

In calculating the group-EBITDA, any amounts of R&D expenditure credits (RDECs) are ignored. The same approach is applied in computing tax-EBITDA, see CFM95820.

Elections

The calculation of group-EBITDA can be modified through the operation of the following elections: