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Tip #77: EBITDA or SDE are popular ways to determine a basis for company value.
Earnings before Interest, Taxes, Depreciation and Amortization is just one measure of a company’s operating efficiency. “EBITDA” typically assumes a salary has been paid for a professional manager and is used for larger companies. “SDE” or Seller’s Discretionary Earnings includes everything in EBITDA, plus the salary paid for a working owner/operator and is used for smaller businesses. But there are other factors and adjustments that can play a role in valuing a company as well, such as age of equipment, location, quality of customers, etc. Buyers for a business may take a close look at either EBITDA or SDE in determining their level of interest and the amount of their offer.
