Seller discretionary earnings

Seller discretionary earnings (SDE) is a measure of a business's profitability that takes into account the owner's compensation and personal expenses. It is calculated by adding back the owner's salary, bonuses, and benefits to the business's net income, and then subtracting any personal expenses that the owner pays for using business funds. This measure is often used in the process of valuing a business, because it provides a more accurate picture of the business's potential earnings power. SDE is also sometimes called owner's earnings or adjusted net income.

SDE to value a business

Seller discretionary earnings (SDE) can be used to value a business. SDE is a measure of a business's profitability that takes into account the owner's compensation and personal expenses. This measure is often used in the process of valuing a business, because it provides a more accurate picture of the business's potential earnings power.

It is important to note, however, that SDE is not the only factor that should be considered when valuing a business. Other factors, such as the business's market position, competitive landscape, and growth potential, can also have a significant impact on the value of the business. It is also important to seek the advice of a professional valuator or financial advisor when valuing a business, to ensure that the valuation is accurate and reliable.

SDE vs EBITA

Seller discretionary earnings (SDE) and earnings before interest, taxes, and amortization (EBITA) are both measures of a business's profitability, but they are calculated in different ways and serve different purposes.

SDE is a measure of a business's profitability that takes into account the owner's compensation and personal expenses. It is calculated by adding back the owner's salary, bonuses, and benefits to the business's net income, and then subtracting any personal expenses that the owner pays for using business funds.

EBITA is a measure of a business's profitability that excludes certain expenses, such as interest, taxes, and amortization. It is calculated by taking the business's earnings before interest and taxes (EBIT) and adding back any amortization expenses. This measure is often used by investors and analysts to compare the profitability of different businesses, because it eliminates the effects of financing and accounting decisions and allows for a more apples-to-apples comparison.

In summary, SDE is a measure of a business's potential earnings power, while EBITA is a measure of a business's current profitability. These measures are both useful in different ways, and both can be considered when evaluating a business.