Mergers & Acquisitions

Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Seller’s Discretionary Earnings (SDE)

Definition

Pre-tax net income, plus owner’s compensation, interest, depreciation, amortization, discretionary expenses, as well as adjustments for extraordinary, non-operating revenue or expenses, and non-recurring expenses or revenue.

See Also

Cash flow, EBITDA, net income.

Tips

Seller’s discretionary earnings (SDE) is also referred to as seller’s discretionary cash flow, adjusted cash flow, owner benefit, recast earnings, or normalized earnings, although seller’s discretionary earnings is the official name advocated by the International Business Brokers Association (IBBA). SDE is commonly used for small businesses, while EBITDA is more commonly used for mid-sized businesses. The main difference between SDE and EBITDA is that SDE includes the owner’s compensation, whereas EBITDA does not.

Related Resources

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?