Glossary
EBITDA
EBITDA stands for earnings before interest, taxes, depreciation and amortization. It measures operating profit before financing and accounting choices.
The key difference from SDE is the owner's pay. SDE adds back one owner's salary; EBITDA assumes a manager is paid a market salary and keeps that cost in. Larger businesses with a management team are usually valued on EBITDA. Smaller owner-operated businesses are usually valued on SDE.
The trap: comparing a multiple of SDE with a multiple of EBITDA. For the same business, SDE is higher, so SDE multiples are lower. Always confirm which measure a quoted multiple uses.