Mergers & Acquisitions

Resources: Glossary

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An adjustment made to the income or expenses in a financial statement when calculating the true earnings capacity of a business (i.e., SDE or EBITDA).

See Also

Normalize, SDE, EBITDA.


Most business owners manage their businesses by minimizing taxable income by deducting expenses not directly related to the business’s operations. It’s necessary to adjust the financial statements by “adding back” these expenses in order to show the actual cash flow available to potential investors. Adjusting the financials allows someone to compare a business to other businesses using seller’s discretionary earnings (SDE) or EBITDA.

Related Articles

Adjusting Financial Statements: A Complete Guide

EBITDA | Definition, Formula & Example – A Complete Guide

Seller’s Discretionary Earnings (SDE) | Definition & Examples

Should I use SDE or EBITDA to value a business?